Robinhood event contracts probed in Massachusetts amid “gimmick” accusation
Retail brokerage firm draws the ire of secretary of state Bill Galvin, who has argued the company is attempting to lure its users away from sound investing with its sports event contracts
The Massachusetts secretary of state, Bill Galvin, has opened an investigation into Robinhood amid concerns over its prediction markets hub.
The product allows users to trade sports event contracts based on what they think the outcome will be of certain fixtures, such as the March Madness college basketball tournament.
Earlier this month, Robinhood confirmed its return to the event contracts space with the launch of its March Madness contracts, housed on the aforementioned prediction market hub.
This news came weeks after the company initially rolled out the contracts for last month’s Super Bowl LIX, only to U-turn within 24 hours at the request of US regulatory body, the Commodity Futures Trading Commission (CFTC).
The hub is powered in the US via Kalshi’s technology, with the New York-based exchange also emerging as a frontrunner in the sector.
Following its launch on March 17, Robinhood claimed it planned to offer its customers the “opportunity to trade on the outcomes of some of the world’s biggest events.”
The contracts are accessible to anyone aged 18 and over in all 50 US states, sidestepping the state-by-state regulations that traditional sportsbooks must adhere to.
However, the rollout has not evaded the attention of Massachusetts’ secretary of state Bill Galvin, whose office has sent Robinhood a subpoena asking for more information on how many of its users had requested to trade college sports event contracts.
Galvin recently told Reuters he harbors concerns that Robinhood was “linking a gambling event on a popular sports event that’s especially popular to young people to a brokerage account.”
He added: “This is just another gimmick from a company that’s very good at gimmicks to lure investors away from sound investing.”
The subpoena has also called on Robinhood to provide copies of marketing materials and identify any Massachusetts-based users that have attempted to trade college sports contracts.
A Robinhood spokesperson has outlined the fact that the contracts are regulated by the CFTC and offered to users through CFTC-registered entities.
“Prediction markets have become increasingly relevant for retail and institutional investors alike, and we’re proud to be one of the first platforms to offer these products to retail customers in a safe and regulated manner,” the spokesperson remarked.
A CFTC statement provided to Reuters notes that the regulator “has no legal justification to prevent Robinhood from offering access to these contracts, which are listed on a CFTC-registered exchange.”
Galvin’s subpoena asks Robinhood to disclose communications between staff over the decision to launch the contracts and prediction hub.
The Massachusetts politician has history with Robinhood, with Galvin’s office accusing the retail brokerage firm of encouraging inexperienced investors to engage with its products and make risky investments in 2020. In response, Robinhood paid $7.5m to resolve the claims.
Meanwhile, in Kalshi news, the firm has released a series of new measures to bolster its player protection and integrity measures.
Kalshi CEO Tarek Mansour took to X to shed light on the company’s newly created Customer Protection Hub, which details several measures commonly used by traditional sportsbooks.
The new features include deposit caps, trading breaks, and the ability to voluntarily opt-out, traits that Mansour believes reinforces Kalshi’s “commitment to putting customer safety first.”
He added: “These safeguards work in addition to our internal market surveillance team and regulation systems to improve our market integrity.”
Mansour’s update came on the same day that Kalshi confirmed it had partnered with Integrity Compliance 360 (IC360) to integrate its integrity monitoring and ProhiBet services.
By calling on IC360’s solutions, Kalshi will be able to monitor suspicious activity, while the use of ProhiBet means the prediction market can access an encrypted list of individuals who are prohibited from engaging in prediction markets or sports betting.
“From the beginning, we knew the only way to achieve the true potential of prediction markets was to build a market that was as safe, trustworthy, and compliant as possible,” the Kalshi CEO explained.
“Every decision we’ve made at Kalshi has followed that core principle, and our partnership with IC360 is rooted in that belief. We’re excited to have them as a partner to help ensure our markets remain the gold standard in safety and integrity,” Mansour added.