Massachusetts' top securities regulator has initiated an investigation into Robinhood's launch of a prediction-markets hub that permits users to bet on various events, including the March Madness college basketball tournaments.
Massachusetts Secretary of State Bill Galvin expressed concerns that Robinhood was linking a gambling event related to a popular sports occasion, especially favored by young people, to a brokerage account. He characterized it as just another gimmick from a company adept at attracting investors away from sound investing practices.
Galvin's office sent a subpoena to Robinhood last week to obtain information regarding how many of its brokerage account users in the state have requested to trade college sports event contracts as the NCAA tournaments commenced. The subpoena seeks copies of Robinhood's marketing materials and requests the identification of any state residents with brokerage accounts who have shown interest in trading college sports contracts.
A Robinhood spokesperson stated that the events contracts are regulated by the U.S. Commodity Futures Trading Commission (CFTC) and are provided through CFTC-registered entities. They emphasized that prediction markets are becoming increasingly relevant for both retail and institutional investors, and Robinhood takes pride in being one of the first platforms to offer these products to retail customers in a safe and regulated manner.
Based in Menlo Park, California, Robinhood has reported that its prediction markets will initially be available nationwide through derivatives trading platform KalshiEX, allowing eligible customers to bet on the outcomes of college basketball tournaments.
This development follows Robinhood's prior introduction of event contracts allowing users to participate in similar activities, just a day after its launch. The announcement of the prediction markets came after recent communications with the CFTC, with the company affirming its commitment to work with regulators.
A CFTC spokesperson stated that the agency has determined it has no legal grounds to prevent Robinhood from offering access to these contracts listed on a CFTC-registered exchange. As part of the request for records from Robinhood, the subpoena seeks internal communications about the decision to launch college sports event contracts, particularly given the CFTC's earlier request in February.
The investigation marks the latest legal confrontation between Galvin and Robinhood. In 2020, Galvin's office accused Robinhood of encouraging inexperienced investors to engage in risky trades without limits, employing "gamification" techniques such as confetti animations for each trade made on its app. Robinhood has sought to address these claims, as well as issues identified during a separate investigation into a 2021 data security breach.