Robinhood’s Prediction Markets Under Scrutiny From Massachusetts Top Regulator

Massachusetts’ top securities regulator has initiated an investigation into Robinhood’s recent decision to launch a prediction-markets hub. This platform allows users to wager on the outcomes of various events, including the popular NCAA “March Madness” college basketball tournaments. 

The investigation, led by Secretary of State Bill Galvin, seeks to scrutinize the implications of linking sports betting to brokerage accounts, particularly among younger investors.

Robinhood Defends New Prediction Markets

Galvin expressed his concerns in an interview with Reuters, stating that Robinhood’s actions could be seen as a tactic to attract young investors through what he described as a “gambling event.” He remarked, “This is just another gimmick from a company that’s very good at gimmicks to lure investors away from sound investing.” 

As part of the investigation, Galvin’s office issued a subpoena to Robinhood, requesting detailed information about its users in Massachusetts who have expressed interest in trading college sports event contracts. 

These event contracts enable traders to bet on specific outcomes, creating opportunities for profit across various sectors, including sports, entertainment, and politics. However, their increasing popularity has sparked a contentious debate, with proponents viewing them as a new asset class and critics likening them to gambling.

The subpoena not only seeks to identify users with brokerage accounts who have requested to trade these contracts but also demands copies of Robinhood’s marketing materials. 

A spokesperson for Robinhood defended the prediction markets, asserting that they are regulated by the US Commodity Futures Trading Commission (CFTC) and are offered through CFTC-registered entities. 

“Prediction markets have become increasingly relevant for retail and institutional investors alike,” the spokesperson stated, emphasizing Robinhood’s commitment to providing these products in a safe and regulated manner.

Renewed Legal Challenges 

Robinhood has stated that its prediction markets will be available across the US via the derivatives trading platform KalshiEX, allowing customers to bet on outcomes for the NCAA tournaments. 

This launch on March 17 followed the company’s recent scrapping of event contracts for the Super Bowl, which occurred just a day after they were introduced at the request of the CFTC.

Despite the regulatory scrutiny, a CFTC spokesperson confirmed that the agency found no legal grounds to prevent Robinhood from offering these contracts, as they are listed on a CFTC-registered exchange. 

However, Galvin’s investigation is focusing on Robinhood’s internal communications regarding the decision to offer college sports event contracts, particularly in light of the CFTC’s prior guidance.

This investigation is not the first legal challenge Robinhood has faced from Galvin’s office. In 2020, the platform was accused of encouraging “inexperienced investors” to make “risky trades” through gamified features, such as celebratory confetti for each executed trade. The company ultimately agreed to pay $7.5 million in 2024 to resolve these claims and related issues from a data security breach investigation.

Featured image from Shutterstock, chart from TradingView.com