“This should have never happened,” Rep. Lauren Underwood told CNN Business on Tuesday.
In response to the letter, Robinhood said it would work with the lawmakers. “We take our responsibility to our customers seriously and will work with the Representatives and Senators to address their questions and concerns,” a spokesperson said in a statement.
‘A recipe for disaster’
The tragedy drew widespread attention to the potential risks of the free-trading boom ushered in by Robinhood, which caters to young, first-time investors.
Kearns, a college student with no income, was using Robinhood to trade complex options instruments. The Kearns family believes Alexander was misled by the app’s interface suggesting he owed $730,000, when that was not really the case.
Underwood accused Robinhood of incentivizing risky trading to new investors while providing limited customer support.
“I see that as a recipe for disaster,” Underwood told CNN Business. “Robinhood has designed a platform that feels very much like a video game…It’s not a game. It’s real life.”
A Robinhood spokesperson said the company has doubled the number of customer support agents it has and plans to add hundreds of registered financial services professionals by the end of the year. That customer service typically takes place via email.
Gaps in oversight?
The tragedy could prompt increased scrutiny from regulators.
Lawmakers are “exploring avenues to compel” regulators to increase oversight on Robinhood and similar platforms, Underwood said in an interview.
“This spotlights some real gaps in our systems and oversight,” she said.
The Securities and Exchange Commission, which Underwood mentioned in the letter as a a regulator that should be urged to take action here, declined to comment.
Jay Clayton, chairman of the SEC, told lawmakers last month the incident was “just terrible.” Clayton said the agency is working with FINRA, the finance industry’s self-regulator, to improve disclosure requirements in this area.
The letter from lawmakers requested a written response from Robinhood to a series of questions, including whether the startup evaluates a user’s age and experience before granting approval to advanced options instruments. The lawmakers asked if Robinhood plans to add a phone support number — something the startup confirmed it does not currently have.
The zero-commission business model of Robinhood has transformed the brokerage industry by capturing market share from existing players. Robinhood’s rivals eventually capitulated and slashed fees to zero.