Robinhood Under Investigation for ‘Gambling-Like’ Trades

Massachusetts regulators have launched an investigation into Robinhood over its recently introduced prediction markets, per Reuters report. These markets allow users to trade event contracts based on outcomes such as sports tournaments and economic events.

On March 20, Massachusetts Secretary of State Bill Galvin issued a subpoena to Robinhood. His office is requesting details on how the company promotes these contracts and how many Massachusetts residents have participated. Expressing concern, Galvin stated, 

“Robinhood is using creative strategies to attract investors, but these products may not align with responsible investing.”

Regulators Examine the Line Between Investing and Gambling

Officials are assessing whether Robinhood’s event contracts function more as gambling than investing. The company launched its prediction markets hub on March 17 in collaboration with Kalshi, a Commodity Futures Trading Commission (CFTC)-regulated exchange.

The Massachusetts investigation comes after Robinhood previously withdrew Super Bowl-related event contracts following discussions with the CFTC. Galvin emphasized that this latest product may be “blurring the distinction between speculative investing and gambling, particularly for younger traders.” 

His office has asked for internal company records explaining why Robinhood proceeded with college basketball event contracts after earlier regulatory concerns.

Robinhood Defends Its Prediction Markets

Robinhood maintains that its event contracts are fully compliant with regulations. A company spokesperson stated, 

“These contracts operate under CFTC oversight and are offered through approved entities.” 

The company also pointed out that prediction markets are gaining traction with different types of investors. “Both retail and institutional traders are showing increased interest in event-based contracts, and we are proud to offer access to them in a regulated environment,” the spokesperson added.

The CFTC has not issued a public response to the Massachusetts probe. However, the commission recently reviewed Robinhood’s prediction market offerings and did not take action to prevent them from being listed.

Previous Regulatory Scrutiny and Stock Market Reaction

Robinhood has faced regulatory scrutiny before. In January 2024, the company paid $7.5 million to settle previous allegations related to its trading practices. The latest inquiry raises further questions about how prediction markets should be classified under financial laws.

Despite the ongoing investigation, Robinhood’s stock (HOOD) saw a 9% increase on March 24, closing at $48.36. Although still below its all time high of $65.28 reached on February 14, the stock has climbed in the region of 30 percent since the end of last year.

Robinhood continues to offer prediction markets through Kalshi, which has previously provided event contracts related to elections and economic forecasts. Massachusetts regulators expect the company to submit the requested information by April 3.