Recently, the American fintech company Robinhood filed a lawsuit in the Massachusetts state court, seeking to prevent the state's Attorney General and the Gaming Commission (MGC) from enforcing state-level regulation on its sports prediction market business. This action is seen as the latest manifestation of the conflict between federal and state regulations over jurisdiction in the prediction market.
The focus of the lawsuit revolves around Robinhood's collaboration with the CFTC-regulated platform Kalshi. Through this collaboration, Robinhood provides users with access to trade sports event prediction contracts. Massachusetts regulatory authorities consider these contracts to be within the realm of sports betting, requiring state-level licensing and regulation. However, Robinhood emphasizes in the lawsuit that these contracts are financial derivatives, governed by the Commodity Exchange Act (CEA), and fall under federal regulation, with no state government interference.
In August 2023, Robinhood officially established a partnership with the CFTC-authorized Designated Contract Market (DCM) Kalshi, providing users with prediction contract trading services, including NFL events. Robinhood only serves as a user access platform and does not directly handle transaction execution. The company states that Massachusetts is attempting to impose local regulations on federally regulated products, violating the "Supremacy Clause" of the U.S. Constitution.
The development of this case follows closely after the Massachusetts government's lawsuit against Kalshi. Attorney General Andrea Joy Campbell pointed out that sports betting poses risks of addiction and economic loss, and must be strictly regulated to protect public interest. The state government is concerned that prediction contracts may circumvent existing sports betting regulations.
In the complaint, Robinhood states that if the state government expands its enforcement scope, the company will face civil penalties, criminal charges, and significant reputational damage. Currently, about 31,000 users in Massachusetts trade prediction contracts through the Robinhood platform, and this business may be forced to cease due to regulatory intervention.
Industry observers note that this lawsuit reflects the complex legal environment faced by the prediction market in the United States. In addition to Massachusetts, Kalshi also faces similar legal challenges in New Jersey, Nevada, and California. Robinhood's proactive lawsuit is seen as an important test case for businesses to respond to state-level regulatory challenges.
As the case progresses, the division of regulatory authority between federal and state governments in the field of financial innovation may set an important precedent. The outcome of this case will have a profound impact on the future development of the U.S. prediction market.
