Connecticut Accuses Robinhood, Crypto.com and Kalshi of Unlicensed Sports Betting Through Event Contracts

• Connecticut regulators claim event contracts on these platforms equate to illegal sports wagering without proper licensing.

• Platforms are criticized for lacking safeguards against underage betting and insider manipulation.

• Prediction markets have surged, with November volumes reaching record highs according to Token Terminal data, attracting billions in investments.

Discover why Connecticut issued cease and desist orders to Robinhood, Crypto.com, and Kalshi over event contracts as unlicensed sports betting. Learn the risks and legal battles shaping prediction markets today—stay informed on crypto regulations.

What is the Connecticut Cease and Desist Order Against Robinhood, Crypto.com, and Kalshi?

Connecticut cease and desist orders target platforms offering event contracts, which state officials view as unlicensed online gambling, specifically sports wagering. Issued by the Department of Consumer Protection on Wednesday, these directives accuse Robinhood, Crypto.com, and Kalshi of conducting illegal activities by allowing users to bet on event outcomes without state approval. None of the entities hold the necessary wagering licenses, and their operations reportedly breach multiple state laws, including prohibitions on wagers by individuals under 21.

The orders highlight broader regulatory challenges in the prediction market space, where platforms enable trading on real-world events like sports results or political outcomes. As these markets have exploded in popularity, drawing significant user engagement and investment, states like Connecticut are stepping up enforcement to protect consumers from unregulated risks. Commissioner Bryan Cafferelli emphasized that even licensed operations would fail to meet state standards due to violations in age verification and other policies.

Prediction markets saw huge volumes in November. Source: Token Terminal

Prediction markets have experienced unprecedented growth this year, with trading volumes skyrocketing and billions of dollars poured into platforms that facilitate bets on diverse events. This surge has prompted legal scrutiny across the U.S., as regulators grapple with classifying these activities under existing gambling laws. In Connecticut, officials argue that the lack of oversight exposes users to financial losses without recourse, underscoring the need for stringent compliance.

How Do Event Contracts Violate Connecticut’s Sports Betting Regulations?

Event contracts on platforms like Kalshi, Robinhood, and Crypto.com are structured as financial instruments allowing users to speculate on event outcomes, but Connecticut regulators equate them to sports betting due to their wagering-like nature. The Department of Consumer Protection asserts that these contracts lack the technical standards required for secure handling of financial and personal data, making them vulnerable to breaches and fraud. Kris Gilman, DCP Gaming Director, noted that the platforms deceptively market their services as legal while evading state oversight, which leaves consumers unprotected.

Key violations include the absence of integrity measures to detect insider betting or manipulation, unregulated payout mechanisms, and targeted advertising to vulnerable groups such as self-excluded gamblers and college students. Platforms also permit wagers on events with predetermined outcomes, potentially giving insiders unfair edges. According to the DCP, these issues compound the risks, as users receive no state-mandated protections for their funds or information. Expert analyses from financial watchdogs, such as those referenced in reports by Cointelegraph, reinforce that prediction markets operate in a regulatory gray area, often blurring lines between derivatives trading and gambling.

Only three entities—DraftKings, FanDuel, and Fanatics—are authorized for sports wagering in Connecticut, all enforcing a strict 21-year-old minimum age. The DCP’s actions aim to redirect users toward these licensed options, which adhere to comprehensive security protocols and consumer safeguards. This enforcement reflects a national trend, with states increasingly viewing event contracts as extensions of traditional betting rather than innovative financial tools.

Source: Connecticut Department of Consumer Protection

The Connecticut Department of Consumer Protection’s cease and desist letters detail these concerns, emphasizing the platforms’ failure to implement age gates and anti-manipulation controls. Such lapses not only endanger minors but also undermine market fairness, as evidenced by cases in other jurisdictions. Regulatory bodies like the Commodity Futures Trading Commission oversee federal aspects of derivatives, yet states maintain authority over intrastate gambling activities, creating jurisdictional tensions.

Frequently Asked Questions

Why Did Connecticut Target Robinhood, Crypto.com, and Kalshi Specifically for Event Contracts?

Connecticut targeted these platforms because their event contracts were deemed unlicensed sports betting, operating without state approval and violating age and integrity laws. The Department of Consumer Protection cited deceptive advertising and lack of consumer protections as key issues, noting that users face risks without regulatory safeguards for their funds and data. This action aligns with efforts to enforce only authorized wagering providers in the state.

What Legal Challenges Are Prediction Markets Facing in the US?

Prediction markets are encountering legal hurdles in multiple states due to their rapid growth and classification as gambling. Regulators argue they lack proper licensing and expose users to risks like manipulation and underage access. Platforms must navigate federal oversight from the CFTC alongside state gambling laws, leading to lawsuits that clarify jurisdictional boundaries and protect consumers nationwide.

In response to Connecticut’s orders, Kalshi has mounted a defense in federal court, asserting that as a regulated exchange for event-based derivatives, it falls under exclusive federal jurisdiction. A Kalshi representative stated the platform differs markedly from state-regulated sportsbooks and remains confident in its federal compliance. The company filed a complaint claiming the state’s intervention disrupts the CFTC’s framework for designated exchanges, where sports event contracts are permissible under national law.

Connecticut is not alone in its scrutiny; neighboring states have issued similar directives. New York sent a cease and desist to Kalshi in late October, prompting a lawsuit from the platform. Massachusetts’ attorney general pursued state court action in September, while cease and desist orders have come from Arizona, Illinois, Montana, and Ohio earlier this year. Ongoing litigation persists in New Jersey, Maryland, and Nevada, as reported by Bookies. Despite these battles, Kalshi recently secured a $1 billion funding round at an $11 billion valuation, fueled by its record November volumes.

Key Takeaways

• Regulatory Crackdown: Connecticut’s cease and desist orders highlight states’ push to classify event contracts as unlicensed sports betting, prioritizing consumer safety and compliance.
• Platform Defenses: Kalshi argues federal oversight via the CFTC exempts it from state gambling rules, setting the stage for broader legal precedents in prediction markets.
• Growing Scrutiny: With billions in investments and surging volumes, prediction platforms face multi-state challenges, urging users to verify licensing before engaging.

Conclusion

The Connecticut cease and desist orders against Robinhood, Crypto.com, and Kalshi underscore the intensifying regulatory battle over event contracts and prediction markets, viewed by states as unlicensed sports betting. As platforms like Kalshi challenge these actions in court, emphasizing federal jurisdiction and CFTC compliance, the landscape for crypto-adjacent financial innovations remains fluid. Consumers should monitor developments closely and opt for state-licensed alternatives to mitigate risks, with future rulings likely to define the balance between innovation and protection in this dynamic sector.