Kalshi and Robinhood face a growing number of legal challenges to their prediction markets. State regulators claim that the prediction markets are online betting and violate state laws. The Connecticut Department of Consumer Protection (DCP) has also confirmed that they are investigating the platforms.
Connecticut Department of Consumer Protection spokesperson Kaitlyn Krasselt stated, “The DCP Gaming Division has an open investigation into prediction market exchange Kalshi, which is suspected of operating in violation of Connecticut law.”
Kalshi and Robinhood’s mounting legal cases
Connecticut’s investigation dates back to the fall when Kalshi and Robinhood opened prediction markets on last year’s presidential election.
“Americans should be allowed to trade on elections because electoral outcomes are extremely valuable information to know, and markets are the most efficient mechanism to aggregate information,” a Kalshi spokesperson said.
The markets proved popular with more than $100 million put down. This year, the platforms have looked to ramp up their offerings on big sporting events. Kalshi opened prediction markets on the Super Bowl and March Madness. Following this, a number of states have made legal challenges.
Nevada, New Jersey, and Ohio all issued cease-and-desist letters this week, and Connecticut may follow given their opposition. There is precedent as the state issued a similar order to offshore sportsbook Bovada last year over claims they were violating online betting laws.
Sports event contracts are online betting
Ohio Casino Control Commission Executive Director Matthew Schuler compared the predictions to online betting. Schuler stated, “Purchasing a contract based on which team a person thinks will win a sporting event is no different than placing a bet through a traditional sportsbook.”
He then added, “The only difference is that these event contracts do not have the consumer protections required under Ohio law and are accessible to Ohioans under 21 years of age. The Commission must take action to fulfill its statutory responsibilities and ensure the integrity of sports gaming in Ohio.”
Kalshi and Robinhood fight back
In response to the legal challenges, Kalshi is suing Nevada and New Jersey. The company claim the contracts provide traders with a hedge against market risks and are not sports betting. They also believe state regulators are interfering with the jurisdiction of the Commodity Futures Trading Commission (CFTC).
In a legal brief filed by Kalshi’s lawyers they stated, “Defendants’ actions would subject Kalshi to the patchwork of state regulation that Congress created the CFTC to prevent and would interfere with the CFTC’s exclusive authority to regulate futures derivatives contracts in the exchanges it oversees.”
The matter looks far from settled, but co-founder Tarek Mansour is ready for battle. Mansour issued strong words in responses to the legal challenges. He stated, “we are proud to be the company that has pioneered this technology and stand ready to defend it once again in a court of law.”
They may have to stand in several courts of law.
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