Robinhood: 5 Things To Know About The Stock-Trading App

ACROSS AMERICA — Robinhood, the stock-trading company at the center of GameStop’s volatile market performance last month, made headlines again after being hit with a wrongful death lawsuit Monday over the 2020 suicide of a college student who believed he lost $730,000 while using the company’s app.

The company is also being sued by regulators in Massachusetts who claim Robinhood manipulated and took advantage of inexperienced customers.

It has also drawn the ire of politicians including U.S. Sen. Elizabeth Warren (D-MA) and U.S. Rep. Alexandria Ocasio-Cortez (D-NY), who have called for a congressional investigation into the company after it briefly banned individuals on its platform from purchasing further shares in GameStop and several other companies when a rush of users from an online forum drove up their stock prices.

RELATED: Parents File Lawsuit Against Robinhood In Wrongful Death Of Son

Here are five things to know about Robinhood:

1. What is Robinhood?

Founded in 2013, the Silicon Valley-based company said on its website that it is “on a mission to democratize finance for all” by providing an easy way to trade stocks and options online without charging a commission on transactions through its website and phone app.

2. Who can use Robinhood?

Anyone who is 18 years or older and a legal resident of the United States with an internet connection can use Robinhood, and prior trading experience isn’t required. Its easy-to-use game-like interface for its website and phone app provides an alluring entry into the oft-complex world of the stock market.

3. What's wrong with Robinhood?

Its ease of use is also what got the company into trouble. Robinhood does little to teach novice investors about the market before allowing them to buy and trade stocks, and it provides little in the way of customer support.

Because of this, the state of Massachusetts is suing Robinhood. In a lawsuit filed in December, state regulators accused the company of using "aggressive tactics to attract new, often inexperienced, investors," and using "gamification to encourage and entice continuous and repetitive use" that encouraged risky trading behavior.

Alexander Kearns, a 20-year-old college student, was one such inexperienced user who began using Robinhood in high school. Last June, he took his own life after mistakenly believing he had lost $730,000 on the app. Kearns had tried to reach the company several times to no avail.

Following his death, the company vowed to better inform users about trading and to improve its user interface.

4. What's going on with GameStop and Reddit?

Robinhood gained increased prominence in January after users from the Reddit forum WallStreetBets used the app in a rush to purchase stocks in video game retailer GameStop and several other companies including BlackBerry and AMC.

Users on the forum began to notice hedge funds were buying shares in the companies in order to "short" their stock, which is a method of betting that the stock price of a company will go down. The funds had borrowed the shares from lenders, sold them and were attempting to buy them back at a lower price in order and return them when Reddit threw a wrench into their plans.

By driving up the price of the stocks, Reddit users forced the hedge funds to purchase back their shares at a loss.

As prices were still soaring, Robinhood stepped in and blocked individual users' abilities to hold onto and buy more stocks in GameStop and the other companies.

5. What does this all mean?

In a statement online, the company claimed it blocked users to protect them from what they said was a volatile market.

Robinhood's actions drew criticism from users who claim the company was going against its own ethos of democratizing finance for the people and acting instead on behalf of corporate interests.

Even members of Congress weighed in on the drama. Sen. Sherrod Brown (D-OH) said in a statement he intends to hold a hearing on what happened in, his position as the incoming chairman for the U.S. Senate's Committee on Banking, Housing and Urban Affairs.

“American workers have known for years the Wall Street system is broken — they’ve been paying the price,” he said. “It’s time for the SEC and Congress to make the economy work for everyone not just Wall Street.”

Ocasio-Cortez echoed those sentiments by tweeting that she would support a hearing if necessary and that an investigation should not be limited to Robinhood.

“Committee investigators should examine any retail services freezing stock purchases in the course of potential investigations — especially those allowing sales, but freezing purchases,” she said.