By Nate Raymond

BOSTON (Reuters) – Massachusetts’ top securities regulator has begun an investigation into trading platform Robinhood’s decision to launch a prediction-markets hub that allows users to bet on the outcomes of a range of events, including March Madness college basketball tournaments.

Massachusetts Secretary of State Bill Galvin, in an interview with Reuters on Monday, said he was concerned that Robinhood was “linking a gambling event on a popular sports event that’s especially popular to young people to a brokerage account.”

“This is just another gimmick from a company that’s very good at gimmicks to lure investors away from sound investing,” said Galvin, a Democrat known as one of the country’s most aggressive state-level securities regulators.

His office sent Robinhood a subpoena last week seeking information related to how many of its brokerage account users in the state have requested to trade college sports events contracts as the men’s and women’s NCAA college basketball tournaments got under way, an official said.

Event contracts allow traders to bet on specific outcomes, offering opportunities to profit from predictions on everything from sports and entertainment to politics and the economy.

Their rising popularity has fueled a heated debate between traders who have embraced the nascent asset class and critics who have likened it to gambling.

The subpoena seeks copies of Robinhood marketing materials and asks the company to identify any and all residents in the state with brokerage accounts with the company who requested to trade college sports events contracts, the official said.

A spokesperson for Robinhood in a statement said the events contracts it offers are regulated by the U.S. Commodity Futures Trading Commission and offered through CFTC-registered entities.

“Prediction markets have become increasingly relevant for retail and institutional investors alike, and we’re proud to be one of the first platforms to offer these products to retail customers in a safe and regulated manner,” the Robinhood spokesperson said.

Menlo Park, California-based Robinhood has said its prediction markets will initially be available across the U.S. through derivatives trading platform KalshiEX, and eligible customers will be able to bet on the results of the upcoming college basketball tournaments.

Its unveiling on March 17 came a month after Robinhood at the request of the CFTC scrapped event contracts allowing users to bet on the outcome of the Super Bowl, just a day after its launch.

Robinhood in announcing the launch of its prediction markets ahead of the NCAA men’s and women’s college basketball tournaments said it had been in contact with the CFTC in recent weeks and will continue to work with the regulator.

A CFTC spokesperson in a statement said the agency had concluded it “has no legal justification to prevent Robinhood from offering access to these contracts, which are listed on a CFTC-registered exchange.”

As part of its request for records from Robinhood, the subpoena Galvin’s office issued is asking for internal communications about the decision to roll out college sports events contracts despite the CFTC’s prior request in February, an official said.

Republican President Donald Trump’s nominee to head the CFTC, Brian Quintenz, has served on Kalshi’s board, and the president’s son, Donald Trump Jr., serves as a strategic adviser to Kalshi.

The case marks the latest legal standoff between Galvin and Robinhood. In 2020, his office accused Robinhood of encouraging inexperienced investors to place risky trades without limits using “gamification” strategies, including having confetti rain down for each trade made on its app.

Robinhood in 2024 agreed to pay $7.5 million to resolve those claims as well as issues uncovered through another investigation by Galvin’s office into a 2021 data security breach.

(Reporting by Nate Raymond in Boston, Editing by Alexia Garamfalvi, Nick Zieminski and Bill Berkrot)

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