Robinhood Faces Massachusetts Probe Over March Madness Prediction Markets

The Massachusetts securities regulator has launched an investigation into trading platform Robinhood and its prediction markets hub.

Robinhood partnered with events contract company Kalshi to launch a predictions market hub for its 25 million users just before the advent of March Madness.

The company launched prediction markets, with JB Mackenzie, VP & GM of Futures and International at Robinhood, stating: “We believe in the power of prediction markets and think they play an important role at the intersection of news, economics, politics, sports, and culture.”

We’re excited to offer our customers a new way to participate in prediction markets and look forward to doing so in compliance with existing regulations,” continued Mackenzie.

Robinhood’s Regulatory Gamble Draws Massachusetts Regulator Scrutiny

Kalshi and Robinhood are offering markets akin to single-match sports betting on March Madness collegiate basketball tournaments. It is marketed as “legal sports betting in 50 states”, but falls under the Commodity Futures Trading Commission for regulation rather than individual state gambling regulators.

Massachusetts Secretary of State Bill Galvin expressed concerns that Robinhood was “linking a gambling event on a popular sports event that’s especially popular to young people with a brokerage account.” This was reported in an interview with Reuters.

Galvin continued: “This is just another gimmick from a company that’s very good at gimmicks to lure investors away from sound investing.”

Reuters reports that Galvin’s Massachusetts office sent Robinhood a subpoena last week, asking for specific information relating to how many of its brokerage account users in the Bay State have requested to trade college sports events contracts.

The subpoena issued by Galvin’s office asks for internal communications about the decision to roll out college sports events despite the CFTC ordering the company to cease offering sports events contracts related to America’s largest sporting event, the Super Bowl.

Galvin and Robinhood have a considerable history with regard to enforcement. In 2020, Galvin’s office agreed to a settlement with the company for $7.5 million after it was alleged that Robinhood was using “gamification” strategies to encourage inexperienced investors to place risky trades. An example provided in litigation was confetti flying down the screen upon making a trade. The same investigation also found evidence of data breaches.

Prediction Markets, Sweepstakes, and Crypto: The Hot Topics in Gambling Law

Sports event contracts, crypto sportsbooks, and online sweepstakes casinos remain among the hottest regulatory topics in gambling at the moment. Robinhood also has crypto functionality, although it is unclear whether the prediction hub, as a standalone, would allow wagers to purchase contracts through crypto.

Nevada recently took action against Kalshi, ordering the company to cease and desist in the state for offering contracts that were considered in breach of Nevada State gaming regulations.