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Robinhood is facing a regulatory probe in Massachusetts over its new prediction markets feature, which lets users wager on outcomes like March Madness basketball games.
According to a Reuters report, Massachusetts Secretary of State Bill Galvin subpoenaed the trading app, demanding details on its marketing materials and the number of state residents participating in the event contracts tied to college sports.
Galvin criticized the offering, saying it dangerously blurs the line between investing and gambling — especially with products targeting younger users. “This is just another gimmick from a company that’s very good at gimmicks,” he told Reuters.
In 2023, Robinhood faced an investigation at the hands of Massachusetts securities regulators over alleged failures to protect inexperienced investors while aggressively promoting its products to them.
Robinhood launched the prediction markets section on March 17 via Kalshi, a Commodity Futures Trading Commission (CFTC)-regulated platform. Early offerings included contracts on NCAA basketball outcomes and the future path of U.S. interest rates.
The company joins a growing list of brokers, including Interactive Brokers, looking to tap into this expanding market.
A Robinhood spokesperson defended the move, saying all contracts are fully compliant with CFTC rules and only offered through registered entities. “Prediction markets are becoming more relevant to retail and institutional investors,” the company said in a statement.
The CFTC declined to comment, while Galvin’s office continues gathering information. The subpoena also asked for internal communications about Robinhood’s decision to roll out the college basketball contracts shortly after it pulled a similar Super Bowl product last month, following a CFTC request.
Event contracts — which let users bet on outcomes ranging from politics to crypto prices —surged in popularity on platforms like Kalshi and Polymarket. But the regulatory picture remains murky, particularly when such products resemble sports gambling more than traditional financial instruments.
Robinhood first entered the sector in October with event contracts tied to the U.S. presidential election, which quickly gained traction. However, the rise of event contracts sparked debate, with some traders embracing them as a financial tool while critics compare them to gambling.
In February, Robinhood faced regulatory hurdles when it pulled Super Bowl-related event contracts just a day after launch following a request from the CFTC. The company said it remains in discussions with the CFTC and plans to work with regulators to ensure compliance.
The move followed reports that the CFTC is also investigating Crypto.com and Kalshi over their Super Bowl event contracts and whether they comply with derivatives regulations. Unlike traditional sports betting, event contracts operate as markets where odds are determined by user participation rather than bookmakers.
