Robinhood Files a Preеmptive Lawsuit in Washington

Robinhood has filed a new lawsuit in Washington, seeking protection from state agencies. This comes amid growing pressures against the divisive prediction markets sector.

The Lawsuit Comes Amid a Separate Conflict Between the State and Kalshi  

While prediction markets claim to be platforms offering trading of event-based contracts and not gambling, regulators and tribal entities in the US have staunchly declared that this format is either gambling or similar enough to gambling.

As a result, prediction markets operators have been facing growing regulatory pushback, with some of them currently dealing with legal issues in several states. At the same time, industry proponents have asserted that prediction markets are CFTC-regulated products that do not fall under the purview of state regulators.

In Washington, Robinhood filed a lawsuit in an attempt to secure relief against state authorities, such as the attorney general and the Washington State Gambling Commission.

Robinhood’s pre-emptive lawsuit provided the state’s action against Kalshi as an example, hoping to avoid dealing with the threat of fines, restitution and an injunction. The former platform said that the problems faced by Kalshi are something that could befall it as well due to the fact that it routes customer trades through Kalshi and other exchanges.

Robinhood also emphasized that its operation is in line with federal law and that trading should be regulated at the federal level. Robinhood also asserted that legal action against its business could force it to close markets at unfavorable prices and deprive traders of access to open positions.

Prediction Markets Face Pressures

The legality of prediction markets and whether state gambling regulators have a say in their operation is only a part of the controversies surrounding the vertical. Other concerns include the industry’s potential for insider trading due to the variety of markets offered by such operators and the potential manipulation of outcomes.

For example, the NFL just asked prediction market platforms like Kalshi and Polymarket to stop offering trading on certain riskier events that could be easily manipulated. It listed events that one person could easily manipulate, outcomes that are predictable, officiating-related events, and inherently objectionable topics as a few examples of markets it believes can be easily manipulated.

In addition to that, recent studies reveal that many players either see prediction markets as a form of gambling, or believe that they should follow similar regulations.