Robinhood has become the latest prediction market platform, after Kalshi, to have filed a lawsuit against Missouri in a bid to stop the state from interpreting and applying gaming laws to (sports) event contracts.
Robinhood Pushes Back Against Missouri’s Attempt to Apply Gambling Laws
The company has filed a complaint against the state of Missouri as well as Attorney General Catherine L. Hanaway. In the complaint filed with the S District Court for the Eastern District of Missouri, the company is seeking a temporary restraining order, preliminary injunction, and permanent injunction against the state.
The measures in the complaint are designed to prevent the state from ending prediction market options with Missouri filing a cease-and-desist letter against companies on September 16, including Robinhood.
In the letter, the state asked Robinhood to stop offering its sports event contracts, which the Missouri Gaming Commission has insisted are illegal because they are not licensed by the regulator.
Robinhood’s arguments run on familiar lines. Sports event contracts are a derivative product, the argument goes, and as such they are regulated under the Commodity Exchange Act (CEA) and not subject to local gaming laws.
Kalshi has already secured a temporary restraining order and preliminary injunction in New Jersey, for example, which is why Robinhood is pushing back on its own. In the complaint, Robinhood’s legal representatives explained the case as such:
“Missouri’s position rests on the premise that, despite express federal preemption and the CFTC’s comprehensive regulation of derivatives trading, event contracts listed on CFTC-regulated DCMs and facilitated by CFTC-registered FCMs constitute ‘wagering’ subject to Missouri gaming laws. That premise cannot be reconciled with the CEA.
Congress vested the CFTC with ‘exclusive jurisdiction’ over DCMs and the products traded on them precisely to establish a single, uniform national derivatives market. Federal courts have long recognized that the CFTC’s regulation of the national derivatives market is exclusive and preempts state involvement.”
Kalshi and Robinhood Could Not Be Licensed Under State Gaming Laws – Even If They Wanted To
Robinhood insists that Missouri is most likely violating the Supremacy Clause, which simply states that federal law takes precedence over state laws. But there are other logistical challenges, argues Robinhood, similar to what Kalshi’s defense pointed out.
Essentially, Kalshi could not obtain a license in Missouri because of the way the law was structured, but even if it did obtain such a license, it would not be able to do so without jeopardizing its federal designation.