Massachusetts regulators are investigating Robinhood over launching a prediction markets hub, a way of letting users bet on March Madness college basketball games on its platform.
Secretary of the Commonwealth of Massachusetts Bill Galvin sent a subpoena to Robinhood on March 20 over the company’s decision to launch its prediction markets hub, a spokesperson for the secretary confirmed to CNN. The probe was first reported by Reuters.
Robinhood on March 17 launched its new hub for prediction markets — basically a form of betting on everything from basketball games in the NCAA tournaments to the chances the Federal Reserve cuts interest rates at a given meeting. Users can buy and trade financial contracts tied to the outcome of a given event, essentially betting on the outcome.
The secretary’s office wants information by April 3 about Massachusetts residents requesting to bet on college sports, the spokesperson confirmed, as well as internal company communication about the hub’s launch.
The Massachusetts probe is the latest investigation into prediction markets, which have soared in popularity in recent years. The rise of prediction markets has brought a bevy of legal questions about where to draw the line between investing and trading versus online gambling.
Galvin said he was concerned that Robinhood was “linking a gambling event on a popular sports event that’s especially popular to young people to a brokerage account,” according to an interview with Reuters.
“This is just another gimmick from a company that’s very good at gimmicks to lure investors away from sound investing,” Galvin said in the interview.
A spokesperson for Robinhood said in a statement that “the event contracts offered by Robinhood Derivatives are regulated by the CFTC and offered through CFTC-registered entities.” (The CFTC is the Commodity Futures Trading Commission, a US market regulator.)
“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,” Robinhood’s statement said.
The prediction markets hub and its event contracts are offered in the US through Kalshi, an exchange for prediction markets regulated by the CFTC. Kalshi has garnered attention in the past for its event contracts tied to bets on the US presidential election.
A spokesperson for the CFTC declined to comment on Galvin’s probe into Robinhood.
This isn’t Galvin’s first investigation into Robinhood. In January 2024, the company paid $7.5 million to settle complaints brought in 2020 and 2021 by Galvin over its practices, including strategies to encourage users to trade.
Robinhood’s launch of the prediction markets hub comes one month after the company ditched plans to allow users to bet on the outcome of the Super Bowl, scrapping the product at the request of the CFTC.
“That review of the company’s risk management procedures and controls applicable to sports-related event contracts has completed, and at this time, the CFTC has no legal justification to prevent Robinhood from offering access to these contracts, which are listed on a CFTC-registered exchange,” a spokesperson for the CFTC said in a statement on Monday.
Robinhood’s stock (HOOD) surged 9% on Monday despite the news of Galvin’s probe. Robinhood stock is up 23% this year.
