Massachusetts Probes Robinhood’s Prediction Markets Amid Gambling Concerns

Massachusetts’ securities regulator has launched an investigation into Robinhood’s prediction markets offering, which allows users to bet on the outcomes of various events, including sports tournaments. The probe, initiated by Massachusetts Secretary Bill Galvin, focuses on the platform's marketing materials and the number of Massachusetts-based users who have traded sports event contracts, particularly those related to college basketball tournaments. Galvin expressed concern that Robinhood is linking gambling events to brokerage accounts, potentially luring young investors away from sound investing practices.

Robinhood introduced its prediction markets hub on March 17, initially available through the Commodity Futures Trading Commission (CFTC)-regulated platform Kalshi. The hub features event contracts on college basketball tournaments and the May federal funds rate. A spokesperson for Robinhood emphasized that these event contracts are regulated by the CFTC and offered through CFTC-registered entities, highlighting the platform's commitment to providing these products in a safe and regulated manner. The spokesperson also noted the growing relevance of prediction markets for both retail and institutional investors.

The investigation by Massachusetts regulators follows a previous incident where Robinhood was forced to scrap event contracts allowing bets on the Super Bowl. This decision came after the CFTC asked the company to cease these activities. The current probe also seeks internal communications from Robinhood regarding the decision to roll out the recent college basketball events contracts following the CFTC's request to stop the Super Bowl contracts. Additionally, the CFTC reportedly asked Kalshi and Crypto.com to explain how their Super Bowl event contracts complied with derivatives regulations.

Event contracts, which allow users to bet on the outcome of various events, have gained popularity on platforms like Polymarket and Kalshi. However, they have also drawn the attention of regulators due to concerns over their legality and potential risks to consumers. The Massachusetts probe aims to ensure that Robinhood's operations comply with state regulations and protect consumers from potential risks associated with prediction markets. The investigation underscores the growing scrutiny over the legality and ethical implications of such activities, particularly in the context of sports betting.