Massachusetts: Robinhood faces state probe over prediction market hub tied to NCAA bets

Massachusetts regulators have launched an investigation into Robinhood following the company’s recent rollout of a prediction markets hub that allows users to bet on events such as NCAA March Madness games.

On March 20, Secretary of the Commonwealth of Massachusetts Bill Galvin issued a subpoena to the trading platform, seeking detailed information by April 3 on Massachusetts residents attempting to place bets on college sports through the feature.

The state is also requesting internal communications surrounding the development and launch of the prediction markets hub, a spokesperson from Galvin’s office told CNN.

Robinhood introduced its event-based trading platform on March 17, offering financial contracts that allow users to speculate on the outcomes of real-world events, which many argue constitutes a form of betting. The product is powered through Kalshi, a Commodity Futures Trading Commission (CFTC)-registered exchange.

Galvin raised concerns about the company's new prediction markets hub. “This is just another gimmick from a company that’s very good at gimmicks to lure investors away from sound investing,” Galvin told Reuters.

He also expressed concern about linking gambling-style bets on college sports to a brokerage account, citing the appeal of such platforms to younger demographics.

Robinhood responded by defending the legality and oversight of its event contracts. “The event contracts offered by Robinhood Derivatives are regulated by the CFTC and offered through CFTC-registered entities,” the company said in a statement. It added that prediction markets are gaining relevance for both retail and institutional investors, and its platform aims to provide access in a “safe and regulated manner.”

The CFTC has not issued a public comment on the Massachusetts inquiry, though it previously reviewed Robinhood’s risk management procedures following the company’s earlier plans to offer Super Bowl-related bets, a feature Robinhood ultimately abandoned at the request of the federal regulator.

Robinhood has faced prior scrutiny from Massachusetts authorities. In January, the company paid $7.5 million to settle earlier allegations regarding user engagement tactics and trading practices filed by Galvin’s office in 2020 and 2021.

Despite the new investigation, Robinhood shares (HOOD) surged 9% on Monday. The stock is up 23% since the beginning of the year.