Robinhood is once again drawing heat from regulators, this time for blurring the line between trading and gambling.
Massachusetts securities regulators have launched an investigation into Robinhood’s new prediction markets, raising alarms over the platform’s latest feature that allows users to wager on college basketball tournament outcomes. For regulators, it’s a risky mix of sports betting, financial speculation, and a younger demographic ripe for targeting.
Massachusetts Secretary of State Bill Galvin confirmed the subpoena, criticizing Robinhood for turning serious investing into a game of chance.
“This is just another gimmick from a company that’s very good at gimmicks,”
Galvin said, accusing Robinhood of luring users, especially younger ones away from sound investing with gambling-style products.
The probe focuses on how Robinhood marketed these event contracts, specifically demanding data on Massachusetts-based users who engaged in sports betting contracts tied to college basketball. Galvin’s concern? Brokerage accounts shouldn’t double as betting platforms, especially when the events appeal to younger users.
Betting Wrapped in a Financial Product
Robinhood’s Prediction Markets Hub, launched March 17, opened access to CFTC-regulated event contracts through Kalshi. The initial offerings included bets on March Madness outcomes and the federal funds rate.
A Robinhood spokesperson defended the move, stating that these contracts are fully regulated by the Commodity Futures Trading Commission (CFTC) and offered via licensed entities.
“Prediction markets have become increasingly relevant for retail and institutional investors alike,” the spokesperson said. “We’re proud to be one of the first platforms offering these products in a safe, regulated manner.”
But for many regulators, the growing popularity of event contracts signals uncharted and risky territory.
Event contracts allow users to bet on anything from sports results to elections or crypto prices. Platforms like Polymarket and Kalshi have helped popularize the concept, drawing both user interest and regulatory attention.
In fact, Robinhood is no stranger to pushback. Just last month, the company quietly scrapped its Super Bowl betting contracts a day after launch following pressure from the CFTC.
Now, Massachusetts wants to know why Robinhood pivoted so quickly to college basketball right after the Super Bowl incident. The subpoena demands internal communications about that decision—suggesting that regulators are piecing together whether Robinhood intentionally tried to sidestep earlier warnings.
The CFTC is reportedly expanding its inquiries too, recently questioning Kalshi and Crypto.com about their Super Bowl bets and whether they meet derivatives regulations.
Bigger Picture – Betting, Finance, and the Regulatory Gap
Robinhood’s latest clash with regulators is a microcosm of a bigger debate: where does trading end and gambling begin?
Prediction markets operate in a legal gray zone, pulling retail users into highly speculative bets under the guise of financial instruments. With major trading apps like Robinhood jumping in, the pressure is mounting on U.S. regulators to clarify the rules and fast.
For retail investors, the stakes are high. Wrapped in financial jargon and trading dashboards, prediction markets may normalize gambling behavior within traditional investment platforms.
What Happens Next?
The Massachusetts probe is just the latest salvo, but it won’t be the last. As prediction markets grow, expect state regulators and federal agencies to tighten their grip, especially with elections, sports seasons, and volatile markets ahead.
For Robinhood, the path forward is risky. Another regulatory showdown could reshape how far it—and other platforms can push the boundaries between finance and entertainment.
