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With reference to its newly launched sports betting prediction market, Massachusetts has filed a subpoena against Robinhood. This most recent development opens a new chapter in the ongoing discussion about U.S. prediction market regulation.
In collaboration with Kalshi, Robinhood, a company renowned for upending the financial services industry, recently opened a prediction markets hub. Users of this hub can purchase and sell contracts based on the results of a number of events, such as the NCAA basketball playoffs and the target rate set by the US Federal Reserve. According to reports, the platform brought in $200 million for the preliminary stages of the competitions.
However, Massachusetts Secretary of State Bill Calvin expressed concerns, stating: “This is just another gimmick from a company that’s very good at gimmicks to lure investors away from sound investing.”
The subpoena demands Robinhood provide marketing materials and a list of Massachusetts residents who attempted to trade on the basketball events.
While traditional sports betting falls under state regulation, Robinhood’s prediction markets are classified as futures contracts and overseen by the U.S. Federal Commodities Futures Trading Commission (CFTC). This distinction allows Robinhood to avoid state gambling laws and associated taxes.
Despite past legal issues with Massachusetts, where Robinhood paid a $7.5 million fine in 2020 for alleged securities law violations, the platform continues to operate within the CFTC’s jurisdiction. A spokesperson from the CFTC supported Robinhood’s actions, stating: “The agency concluded it ‘has no legal justification to prevent Robinhood from offering access to these contracts, which are listed on a CFTC-registered exchange.’”