State Targets Event Contracts as Illegal Wagering
Connecticut has issued cease-and-desist orders against Kalshi, Robinhood, and Crypto.com, accusing them of running unlicensed online sports betting through event-based contracts. The Department of Consumer Protection stated that the companies violated state wagering laws and exposed residents to unregulated services. This action specifically targeted platforms involved in prediction markets that state officials classified as illegal sports wagering.
Officials indicated that the three firms offered sports-related event contracts to Connecticut users without the necessary licenses. Furthermore, the state claimed that these contracts crossed several legal boundaries, including offering wagers to individuals under the age of 21. DCP Commissioner Bryan Cafferelli identified DraftKings, FanDuel, and Fanatics as the only entities legally permitted to operate sports wagering programs within the state.
The issued notices directed Kalshi, Robinhood, and Crypto.com to immediately cease advertising and offering any event contracts to Connecticut residents. The orders also included a warning that any violation could result in civil or criminal penalties.
Federal Oversight Cited as Tension Deepens
Despite the state's directives, the companies defended their operations by referencing federal approvals. Robinhood stated that its event contracts operate under the supervision of the Commodity Futures Trading Commission (CFTC) through its Robinhood Derivatives unit. The company asserted that this arrangement provides a regulated environment for users accessing the platform’s prediction markets.
Kalshi presented a similar defense, arguing that the state’s order conflicts with federal law. The platform maintained that the CFTC possesses exclusive authority over its exchange, which lists contracts based on real-world events. According to Kalshi spokesperson Jack Such, federal jurisdiction separates its markets from traditional sportsbooks, which are typically subject to state control.
The conflict intensified as Connecticut asserted that the platforms misled consumers by portraying the contracts as legitimate investment tools. DCP Gaming Director Kris Gilman expressed concern that users faced significant risks because the platforms did not operate within established state consumer-protection rules.
Gilman further added that unlicensed operators fail to provide any safeguards for user funds or personal data. This concern aligns with similar actions taken by other states, including New York, which issued its own cease-and-desist order against Kalshi in late October. Massachusetts filed a lawsuit against the platform in September, while Arizona, Maryland, Ohio, Illinois, and Montana raised objections through their respective gaming agencies. These actions signal a growing national trend as states re-evaluate prediction market products.
In response, Kalshi filed lawsuits in federal court seeking to block state-level restrictions. The company contended that Connecticut's actions constituted an intrusion upon the federal framework governing designated contract markets. Kalshi argued that its sports event contracts remain lawful because they fall under the CFTC’s jurisdiction, rather than state gambling law.
A recent ruling in Nevada introduced further complexity when a judge concluded that state regulators might possess authority over certain sports-based contracts. This decision challenged the industry's assertion that all event contracts fall exclusively under federal review. Although Kalshi intended to appeal this ruling, the judgment presented another obstacle for the prediction market sector.
Multi-State Pressure Extends to Crypto Platforms
Crypto platforms have recently expanded their presence in event-contract markets, thereby broadening the scope of regulatory scrutiny. Crypto.com launched its product in 2024, with Robinhood following suit shortly thereafter. Both platforms rely on Kalshi for contract listings, drawing them into the same regulatory challenges that are now emerging across multiple states.
This wider involvement has also attracted attention from tribal governments. Tribes in California and Wisconsin have initiated legal actions against Kalshi, asserting their sovereign rights over gambling activities.
Polymarket, another prominent operator in this space, expanded its services into more than 20 states after obtaining CFTC approval. This contrasts with Connecticut’s restrictive approach and highlights the inconsistent regulatory landscape that prediction markets currently face.
Connecticut’s cease-and-desist orders against Kalshi, Robinhood, and Crypto.com underscore the escalating tension between federal oversight and state gambling laws. This development adds to a growing number of multi-state actions challenging event-based contracts. The ongoing dispute significantly influences the future trajectory of prediction markets as regulators and platforms continue to contest jurisdictional authority.