Robinhood Sues Massachusetts in Preemptive Strike Over Prediction Markets
The retail trading giant Robinhood has filed a federal lawsuit against the Massachusetts Gaming Commission (MGC) and the state’s attorney general, a preemptive legal strike aimed at preventing state regulators from taking action against its new sports-based prediction market product. Robinhood claims it had “no choice” but to file the lawsuit to protect its business and its customers, arguing that the state’s attempts to regulate its federally overseen product are a violation of the U.S. Constitution.
A Direct Response to the State’s Lawsuit Against Kalshi
Robinhood’s legal action is a direct response to a lawsuit filed just days earlier by Massachusetts Attorney General Andrea Joy Campbell against the prediction market platform Kalshi. In that suit, the state accused Kalshi of operating as an unlicensed online sportsbook.
Crucially for Robinhood, the state’s complaint against Kalshi explicitly mentioned Robinhood’s role as a key distribution partner, noting that Kalshi’s contracts are “also available on Robinhood” and that approximately “$1 billion of Kalshi wagers were sold on Robinhood” in the second quarter of the year.
Faced with what it saw as a “real and imminent threat” of similar legal action, Robinhood went on the offensive, filing its own lawsuit to block any potential enforcement from the state.
The Core of the Legal Argument: Federal Preemption
The central legal argument in Robinhood’s lawsuit is the principle of federal preemption. The company contends that the event contracts it offers are under the “exclusive jurisdiction” of the federal Commodity Futures Trading Commission (CFTC).
While Robinhood provides the user interface for its customers, the company argues that the actual trades are executed on Kalshi’s federally regulated exchange. As such, Robinhood maintains that the entire operation is governed by the federal Commodity Exchange Act, and that state gambling laws simply do not apply.
The company is asking a federal court to issue an injunction that would prevent Massachusetts from attempting to regulate its event contract trading, arguing that any such intervention would violate the Supremacy Clause of the U.S. Constitution.
A Nationwide Battle with Diverging Outcomes
The legal fight in Massachusetts is just one front in a much larger, nationwide war over the regulation of prediction markets. Similar legal battles are being waged in several other states, with mixed results.
- In New Jersey and Nevada, federal courts have so far sided with the prediction market platforms, granting them preliminary injunctions that allow them to continue operating.
- In Maryland, however, a federal judge recently sided with state regulators, denying a similar request for an injunction from Kalshi.
These conflicting rulings have created a patchwork of legal uncertainty, and the issue is widely expected to eventually make its way to the U.S. Supreme Court for a final resolution.
For Robinhood, the stakes are high. The company is seeking to “preserve its customers’ access to federally regulated contract trading” and to avoid the “immediate reputational harm” and potential civil and criminal penalties that would come with an enforcement action from the state.
Recommended