Massachusetts regulators have launched an investigation into Robinhood and its exchange partner Kalshi over their March Madness event contracts trading platform.
Secretary of the Commonwealth Bill Galvin confirmed his office issued the subpoena to Robinhood on March 20. As first reported by Reuters, Galvin’s office has asked Robinhood for internal communications and data on how many Massachusetts users had attempted to trade contracts tied to the NCAA men’s and women’s basketball tournaments.
The platform, unveiled just days before the tournaments began, allows retail investors to speculate on the outcomes of college games, similar in function to sports betting, but without the same regulatory guardrails.
“This is just another gimmick from a company that’s very good at gimmicks to lure investors away from sound investing,” Galvin told Reuters. “I’m particularly concerned they’re linking a gambling event that’s especially popular with young people to a brokerage account.”
Widespread regulatory uncertainty
Robinhood launched its prediction markets hub on March 17, allowing users to buy contracts tied to real-world outcomes, ranging from sports events to macroeconomic decisions and Oscar winners, via Kalshi, a federally regulated event contract exchange. While the Commodity Futures Trading Commission oversees Kalshi and its offerings, regulators and officials have questioned whether these contracts are simply sports wagers in disguise.
The subpoena seeks information by April 3, including documentation around Robinhood’s decision to launch the college basketball contracts despite a previous request from the CFTC in February to pause similar offerings tied to Super Bowl 59. It removed the product after just one day.
Nevada gaming regulators earlier this month issued a cease-and-desist order against Robinhood, pointing to its college basketball contracts as unlicensed sports betting. The state has since granted the company more time to respond. Kalshi faced similar scrutiny in Nevada after attempting to offer Super Bowl contracts.
A Robinhood spokesperson said the event contracts are “regulated by the CFTC and offered through CFTC-registered entities” and described prediction markets as “increasingly relevant for retail and institutional investors alike.”
CFTC set to chime in
The CFTC is set to host a public roundtable in the coming weeks to examine the future of sports-related event contracts, as debate intensifies over whether prediction markets constitute unregulated sports betting.
Acting Commissioner Caroline Pham described the session as the “first major step in establishing a holistic regulatory framework” for the growing sector. It follows a surge in public comments from lawmakers, sports leagues, tribal governments, and industry stakeholders, with more than 25 submissions already filed.
Critics argue that event contracts tied to sports — particularly college sports — lack the integrity monitoring, responsible gaming tools, and regulatory oversight required of licensed sportsbooks. That includes collaboration with sports leagues, surveillance for suspicious betting patterns, and restrictions on bets involving student-athletes.
DraftKings, one of the top regulated sportsbooks in the country, has also shown interest in event-based trading. The company filed the necessary paperwork with the National Futures Association in July, though it has yet to reveal specific plans.
Prediction market controversy pools over into college sports
Kalshi has been at the center of the debate over what qualifies as legal derivatives trading versus unregulated gambling. The exchange won a federal court case against the CFTC last year, opening the door for trading platforms to accept over $400 million on the 2024 election, including $132 million on the presidency.
The Massachusetts investigation is not the first run-in between Galvin’s office and Robinhood. In January, the company agreed to pay $7.5 million to resolve complaints dating back to 2020 and 2021 involving trading practices and data security issues, including allegations of using gamification tactics to encourage risky trades.
