Robinhood: The Challenges of Keeping Pace with Innovation

"If you are reading this then I am dead. See the image 'Suicide 2' for why, I suppose.
[Image of screenshot of an account statement with a negative balance of $730,165./ How
was a 20-year-old with no income able to get assigned almost a million dollars' worth of
leverage?" Moments after leaving this message on his computer, a college sophomore
whom we will call Nick took his life in his childhood home, where he was staying with his
parents during the pandemic.

Like many people during quarantine, Nick had taken up a hobby. He was interested in
investing and was drawn to the popular investment app Robinhood. With the tagline
"Investing for Everyone," Robinhood marketed itself as providing user-friendly tools that
would allow the Average Joe investor to buy stocks without having to employ a financial
professional and pay the commission fees associated with these transactions. Robinhood
initiated a trend among brokerage firms by offering commission-free trading with zero
minimum balances to attract young, aspiring, and inexperienced investors like Nick.

Nick opened an account with Robinhood and began investing. He began to experiment with
trading options. Options are contracts giving the buyer the right without an obligation to
buy or sell a stock at a specific price on or before a certain date. They are risky trans-
actions, because it is possible for investors to end up owing more their initial investment,
and so are typically used by sophisticated, professional investors. Things went wrong on
June 12, 2020, when Nick was shocked to see that his account showed a negative balance
of $730,165. In his suicide letter, he explained that he had never intended to risk any more
money than he began with. Nick had tried unsuccessfully to contact Robinhood several
times. His calls to the helpline and e-mail requests for clarification went unanswered.

Slow and unresponsive customer service were not new issues for Robinhood. On August 4,
2018, almost two years before Nick would take his life, a customer had complained about
Robinhood's customer service on Reddit: "Customer Support?? I have had $45,000 locked
up in your system for a week. How is it possible that you have no phone staff to speak
with? How is it possible that it takes a week to get a response to an email and still get
zero information? Do you have a customer support staff at all? What is the dean, Vladimir
Tenev, Robinhood's cofounder and CEO, promised to improve customer support.
Employees, however, reported cott Teney did not dedicate time and resources to improving
customer support but prioritized other projects instead.

In addition to customer support issues, Robinhood also also faced technical problems with
their app. On one oncasion, the app erroneously reversed the direction of customer trades,
such that a trade instructed to go through when prices went up would instead be executed
when prices went down. In another incident, the app allowed customers to borrow much
more money they would normally qualify for.

One time, the app froze for two days, causing customers to lose millions of dollars. The
unreliable performance of the app combined with poor customer service foreshadowed
tragic consequences.

Nick's family believed that Robinhood's slow and inadequate communication prompted the
young man's suicide. "He was in a complete panic. His panic and desperation grew as he
was unable to communicate over a number of hours with anyone at Robinhood," one said.
Another relative, who happened to be a financial industry professional, criticized
Robinhood for failing to provide naive investors with the information they needed to make
reasonable decisions. He noted that the app's interface resembled a video game with
"Confetti popping everywhere" when a transaction was made, adding, "They try to gamify
trading and couch it as an investment. That they didn't have enough foresight to think this
might happen is offensive to me."
Upon learning of Nick's death, Robinhood CEOs Vladimir Tenev and Baiju Bhatt released a
statement stating, "We were devasted by [the young man's] death. We remain committed
to making Robinhood a place to learn and invest responsibly." The statement continued to
outline improvements to the app, including more guidance to help customers, updates on
how it displayed buying power, and live voice support for customers with open options
positions.

These improvements were not implemented in enough time for Nick. As it turned out, after
all of Nick's transactions were completed, his account no longer showed a negative
balance. Ironically, Nick received an e-mail response explaining that he did not owe any
money after he had died by suicide.

Legislators, observing the unfolding events, initiated an investigation. In December 2020,

the Securities and Exchange Commission (SEC) charged Robinhood with misleading
customers and failing to satisfy what was known as the "duty of best execution."
Robinhood paid $64 million in fines. A couple of months later, in February 2021, the House
Financial Services Committee convened virtually to hear testimony from Robinhood CEO
Tenev.

Democratic Representative Sean Casten of Illinois, Nick's home state, questioned Tenev.
In his remarks, Casten recounted the events leading up to the suicide. As he ended his
remarks, Representative Casten took out his cellphone and called the Robinhood helpline.
Putting his phone on speaker he held it up to the screen as it went directly to voicemail,
greeting customers with a recorded message: "Thanks for calling Robinhood! Please visit
us at Robinhood.com or on our app for support. If you have an urgent (trading) need please
make sure to include details of your order when reaching out. Thanks, and have a great
day!"

Discussion Questions

1. What was the public issue facing Robinhood in this case?

2. Describe the "performance-expectations gap" found in the case. What were the
stakeholders' (consumers, employees, legislators) expectations, and how did they
differ from Robinhood's performance?
3. If you applied the strategic radar screens model to this case, which of the eight
environments would be most significant, and why?
4. Apply the issue management life cycle process model to this case. Which stages of
the process can you identify?
5. In your opinion, did Robinhood respond appropriately to this issue? Why or why not?
6. If you were a member of Robinhood's leadership team, what would you have
decided to do (or not to do) in the face of emerging concerns about online investing
apps?

Source: Lawrence A T et.al. Business and Society, Stakeholders, Ethics, Public Policy, 17 th
edition, pp.44-47. McGraw Hill.