Report: New Jersey regulator orders Kalshi and Robinhood to cease operations

New Jersey has become the latest state to slap Kalshi with a cease-and-desist order over its sports event contracts product. 

As first reported by The Closing Line, the New Jersey Division of Gaming Enforcement (DGE) has alleged that both Kalshi and Robinhood are offering unauthorised sports wagering in the state. 

The letters, addressed to Kalshi CEO Tarek Mansour and Robinhood CEO Vlad Tenev, outline the regulator’s demands, which include all contracts traded by New Jersey residents to be voided. 

Kalshi has been accused of violating New Jersey’s constitution, which outlines any wagering on college teams or college-level athletic events based in the state is banned. 

Even if there is no New Jersey-based outfit participating, those in the state are not permitted to place wagers on college-level sports. 

This is in reference to the fact that the East Regional branch of the March Madness basketball tournament is taking place in Newark. 

The orders were issued just hours before the East Regional leg of the tournament was set to get underway. 

Both Kalshi and Robinhood have listed markets on the college basketball contest, with the former accumulating more than $200m (£154.5m) in trade volume from the competition alone. 

Earlier this month, Kalshi rolled out its single-game markets on March Madness games across all 50 US states to any player aged 18 and over. 

More recently, Robinhood launched sports event contracts of its own, powered by Kalshi’s technology and housed on the retail brokerage firm’s newly created prediction market hub.

Kalshi and Robinhood have both been given until 11:59pm ET today, March 28, to adhere to the cease-and-desist order’s instructions by shuttering operations in the state. 

Signed by DGE interim director Mary Jo Flaherty, the letter continued by threatening legal action, adding: “The Division reserves the right to pursue any appropriate sanctions if you fail to take immediate corrective action as demanded herein.

“Failure to comply with this directive will result in the Division taking further enforcement actions, which may include any measures available under New Jersey law.” 

Event contracts have risen to prominence since the build-up to last year’s US presidential election, when Kalshi won the right in court to list contracts on who users believed would win the race to the White House. 

Since then, Crypto.com has also entered the fray, becoming the first to offer sports event contracts based on the outcome of last month’s Super Bowl LIX. 

The burgeoning sector is regulated by the Commodity Futures Trading Commission (CFTC), but the nationwide expansion and similarities to traditional sports betting has resulted in pushback from some state regulators. 

The Nevada Gaming Control Board (NGCB) hit Kalshi with a cease-and-desist order in early March, reminding the firm that offering contracts on sporting events and election outcomes is “unlawful in Nevada, unless and until approved as licensed gaming” by the regulator. 

That was met with a passionate response from Mansour, who took to LinkedIn to claim that the company will “keep marching” despite the regulatory scrutiny. 

Robinhood also drew the ire of lawmakers in Massachusetts, with the secretary of state Bill Galvin opening an investigation into the company and sending a subpoena to gain more information on how many users based in the state have requested to trade college sports event contracts. 

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

A statement from Robinhood sent to EGR Global read: “Event contracts offered by Robinhood Derivatives are federally regulated by the CFTC and offered through CFTC-registered entities, assuring that retail customers can access these prediction markets in a safe and regulated manner.

“While we do not believe these contracts run afoul of any state laws, we are no longer allowing New Jersey residents to enter new positions for the Men’s and Women’s Basketball Tournament event contacts.” 

A Kalshi spokesperson told EGR Global: “Kalshi believes in the value of regulation and operates under the comprehensive oversight of the Commodity Futures Trading Commission. We look forward to engaging with the state of New Jersey to resolve this matter.”