Massachusetts has taken a significant step by initiating a comprehensive investigation into the recent unveiling of a prediction-markets hub by Robinhood. This innovative platform provides users an opportunity to engage in betting on the outcomes of diverse events, notably the NCAA “March Madness” college basketball tournaments. The investigation, spearheaded by Secretary of State Bill Galvin, aims to explore the potential consequences of merging sports betting with brokerage accounts, with a particular focus on the younger demographic of investors.

In an insightful conversation with Reuters, Bill Galvin voiced his apprehensions, suggesting that Robinhood’s actions might be perceived as an effort to captivate young investors through what he termed a “gambling event.” He commented, “This is yet another strategy from a company proficient in gimmicks to divert investors from prudent investment practices.”

As a component of the investigation, Galvin’s office has dispatched a subpoena to Robinhood, seeking comprehensive details about its Massachusetts-based users who have shown an interest in trading college sports event contracts. These event contracts empower traders to speculate on specific outcomes, offering lucrative prospects across various sectors such as sports, entertainment, and politics. However, their rising popularity has ignited a spirited debate. While advocates consider them a novel asset class, detractors liken them to betting.

The subpoena not only demands the identification of users with brokerage accounts keen on trading these contracts but also requests Robinhood’s promotional materials. A spokesperson from Robinhood defended the prediction markets, emphasizing their regulation by the US Commodity Futures Trading Commission (CFTC) and their provision through CFTC-registered entities. “Prediction markets have gained substantial relevance for both retail and institutional investors,” the spokesperson stated, highlighting Robinhood’s dedication to delivering these products within a secure and regulated framework.

Robinhood has announced that its prediction markets will be accessible throughout the United States via the derivatives trading platform KalshiEX, enabling customers to place bets on the outcomes of NCAA tournaments. This launch, which took place on March 17, follows the company’s recent withdrawal of event contracts for the Super Bowl, which occurred just a day after they were launched at the CFTC’s request.

Despite the regulatory scrutiny, a CFTC spokesperson confirmed that the agency found no legal basis to impede Robinhood from offering these contracts, as they are listed on a CFTC-registered exchange. Nevertheless, Galvin’s investigation is concentrating on Robinhood’s internal communications concerning the decision to provide college sports event contracts, especially in light of the CFTC’s previous guidance.

This investigation is not the first legal challenge Robinhood has encountered from Galvin’s office. In 2020, the platform faced allegations of encouraging “inexperienced investors” to engage in “risky trades” through gamified elements, such as celebratory animations for every completed trade. The company ultimately agreed to settle these claims by paying $7.5 million in 2024, addressing related issues stemming from a data security breach investigation.

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