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Just three days after Massachusetts Attorney General Andrea Joy Campbell sued Kalshi for alleged illegal gambling operations, the operator’s partner, Robinhood, has hit back with a lawsuit against the AG’s office and the Massachusetts Gaming Commission (MGC) to defend its operations.
In a filing submitted on September 15 in the US District Court for the District of Massachusetts, Robinhood is seeking an injunction that would stop the state from regulating its involvement in offering sports contracts.
The company argues that such actions would violate the Supremacy Clause of the U.S. Constitution by trying to override the Commodity Exchange Act (CEA). It names Campbell and the MGC’s five commissioners, including Chair Jordan Maynard, as defendants.
Kalshi’s lawsuit referenced in Robinhood’s new case
Robinhood’s lawsuit clearly cites the recent legal action taken against its partner, Kalshi, by the AG’s office. The case against Kalshi was filed last Friday (Sep 12) at the Suffolk County Superior Court and accuses the Commodity Futures Trading Commission-licensed designated contract merchant of being involved in illegal sports betting according to state laws.
The AG’s office, along with the gaming regulator, is pushing for an injunction to remove Kalshi’s sports contracts from the market while the case is being adjudicated, a move that Robinhood believes is a threat to them.
“In light of Massachusetts’s complaint against Kalshi and because Robinhood intermediates its sports-related event contract trades on Kalshi’s exchange, there is a real and imminent threat that Massachusetts will file a similar complaint and motion against Robinhood,” the company stated in the lawsuit. “Were it to do so, Robinhood would face an immediate threat of civil penalties and potentially criminal penalties as well, along with the attendant reputational harm that such an enforcement proceeding would cause.”
The trades don’t take place on our platform, says Robinhood
Robinhood also clarified its role in the sports trading markets it offers through its partnership with Kalshi. The company emphasized that while it facilitates the placement and liquidation of event contracts, the actual trading of these contracts occurs on Kalshi’s regulated exchange.
As a CFTC-licensed futures commission merchant (FCM), Robinhood accepts customer funds for orders to buy or sell futures or swaps contracts. In contrast, designated contract merchants (DCMs) like Kalshi are responsible for establishing and managing the markets where these trades happen.
“This means that while Robinhood customers are placing orders for event contract trades in their Robinhood accounts, the trades themselves are taking place on Kalshi’s CFTC-designated exchange,” the case argued. “The user interface is Robinhood’s instead of Kalshi’s, which is convenient for Robinhood customers but does not affect the way in which trades are executed on Kalshi’s exchange or regulated by the CFTC; it merely adds additional CFTC regulation of Robinhood’s activities as an FCM.”
“No choice but to file this lawsuit”
In its Monday filing, Robinhood stated it had “no choice” but to take legal action against the state, as it only offers sports markets for leagues like the NFL through Kalshi’s exchange. The company warned that if the court doesn’t intervene, its users could “abruptly” lose access to trading sports contracts.
Gaming lawyer Daniel Wallach commented on the situation on X, suggesting that instead of participating in the ongoing state court case against Kalshi as an affected party, Robinhood opted to ‘forum-shop’ into federal court. This move, he noted, allows the company to sidestep the more demanding analysis associated with “complete preemption.”
MGC wants Kalshi to obtain a license for sports event contracts
Massachusetts law enforcement and regulators continue to maintain that Kalshi sports event contracts are similar to sports betting markets, with the only difference being the lack of licensing and taxation.
“Sports wagering comes with significant risk of addiction and financial loss and must be strictly regulated to mitigate public health consequences,” Campbell stated on Friday. “This lawsuit will ensure that if Kalshi wants to be in the sports gaming business in Massachusetts, they must obtain a license and follow our laws.”
Both Kalshi and Robinhood are currently embroiled in lawsuits in other states, including New Jersey, Nevada, and California. Kalshi, in particular, has also received cease-and-desist orders from at least five states.
Source: SBCAmerica
Image credit: By Ajay Suresh from New York, NY, USA – Boston -Massachusetts State House, CC BY 2.0, https://commons.wikimedia.org/w/index.php?curid=82156217
