The Massachusetts Secretary of State's office issued a subpoena to Robinhood, the electronic trading platform, seeking information about its recently launched sports betting prediction market. The news, which Reuters broke, marks one more skirmish in the evolving battle over jurisdiction and regulation.
Robinhood has a well-earned reputation as a financial services sector disrupter. It was an early adopter of cryptocurrency trading. It's also at the epicenter of meme stock trading, a social media-fueled investing scheme.
Most recently, Robinhood launched a prediction markets hub, letting customers buy or sell contracts based on specific event outcomes. The first events Robinhood’s app offered were the U.S. Federal Reserve’s target rate in May and the men’s and women’s college basketball tournaments. So far, Robinhood and its prediction markets partner Kalshi attracted roughly $200 million for the NCAA basketball tournaments' early rounds.
When is sports betting an investment?
The U.S. Federal Commodities Futures Trading Commission (CFTC) oversees prediction markets, which technically offer futures contracts rather than bets. By offering futures contracts on sporting events, prediction markets basically bypass state gambling regulations and taxes.
Massachusetts Secretary of State Bill Calvin told Reuters, “This is just another gimmick from a company that’s very good at gimmicks to lure investors away from sound investing.”
The Massachusetts subpoena requests copies of Robinhood’s marketing materials and the names of all Massachusetts residents who requested to trade on NCAA basketball.
This isn’t the first time Robinhood was in the Bay State’s crosshairs. In 2020, Massachusetts accused the platform of violating several state securities laws. Courts dismissed a number of those complaints. Robinhood settled the remaining complaints by paying a $7.5 million fine and a promise to overhaul its customer engagement practices.
State foes and federal allies
While Robinhood might have to deal with this current Massachusetts feud, the odds of it winning the battle on the federal front have improved. The CFTC was reluctant to oversee prediction markets. It may now have little choice, especially given the new administration’s more accommodating regulatory policies.
In fact, a CFTC spokesman said 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.”
And it doesn’t hurt Robinhood’s chances that President Trump’s nominee to head the CFTC served on Kalshi’s Board, while Kalshi named Donald Trump Jr. as a strategic advisor earlier this year.
