Massachusetts regulators are taking a closer look at Robinhood after the popular trading app added event-based prediction markets that allow users to bet on the outcome of popular events, including March Madness. The Massachusetts Secretary of State, Bill Galvin, launched an investigation to find out whether or not the feature is illegal and any other issues in that regard, particularly those that will affect young people.
According to reports, a subpoena was issued to Robinhood last week asking for marketing information and data on how many Massachusetts residents are dealing with these event contracts. This feature allows users to wager a small amount of money on events like the next Federal Reserve interest rate decision.
“This company is known for gimmicks that distract investors from sound financial decisions,” Galvin says.
The prediction markets of Robinhood went live on March 17 when the company integrated Kalshi, a platform governed by the CFTC. People can bet on anything, like the outcomes of college basketball games and whether or not the federal funds rate will be changed in May. According to a Robinhood spokesperson, the contracts are completely regulated and help provide users with new ways to engage with the markets.
Even with regulatory worry, the stock of Robinhood went up a little after the launch of new features. However, continuing perspective may slow down the long-term expansion of the company’s event-based trading services.
After Robinhood tried to do Super Bowl event contracts, the regulators said no and stopped the attempt. The company had to withdraw these offerings in February due to the CFTC’s intervention.
With the regulators probing the legality of the event contracts, Robinhood’s prediction markets may face an uncertain future. The probe will likely decide whether the company can keep on with these offerings or will face more restrictions.
