Connecticut’s Department of Consumer Protection (DCP) has escalated its regulatory scrutiny by issuing cease and desist orders to three major platforms: Robinhood, Crypto.com, and Kalshi. On Wednesday, the state accused these companies of operating unlicensed sports betting through their event contracts, stating that none of these firms hold the necessary licenses to offer such wagering services within Connecticut.
Commissioner Bryan Cafferelli emphasized the legal implications, reiterating that the operations of these platforms violate state laws designed to protect consumers, particularly regulations that prohibit those under the age of 21 from engaging in betting activities. His remarks were echoed by Kris Gilman, the department’s Gaming Director, who accused the platforms of employing misleading advertising tactics that endanger consumers’ money and personal information.
The DCP has made it clear that only three platforms are currently licensed to conduct sports wagering in Connecticut: DraftKings, FanDuel, and Fanatics, which respectively operate through Foxwoods, Mohegan Sun, and the Connecticut Lottery. Each of these licensed platforms requires participants to be at least 21 years old.
Federal Claims and Legal Disputes
In a bold move, Kalshi responded to the cease and desist orders by filing a federal lawsuit against Connecticut. The company argues that it operates as a regulated nationwide exchange under the jurisdiction of the Commodity Futures Trading Commission (CFTC), claiming that it is exempt from state regulations that govern traditional sports betting. Kalshi’s legal position suggests that Connecticut’s actions interfere with the federal framework established for derivatives trading.
Robinhood has also defended its practices, asserting that its prediction market activities are adequately regulated by the CFTC through Robinhood Derivatives, LLC. The company emphasizes its commitment to compliance, arguing that its event contracts are legally sound.
Consumer Protection Concerns Amplified
The DCP’s crackdown stems from serious concerns about consumer protection in the realms of online prediction markets. The department pointed out that these platforms do not adhere to essential technical standards and security protocols, which could jeopardize users’ financial and personal data. Furthermore, the lack of integrity controls raises alarms about potential insider betting, undermining a fair betting environment.
Moreover, there are claims that some platforms allow wagers on events with predetermined outcomes, heightening the risk of unfair advantages for insiders versus regular users. This ongoing regulatory battle reflects a growing tension between state laws and the innovative approaches adopted by crypto and fintech platforms.
A Nationwide Trend in Legal Challenges
Connecticut is not alone in its regulatory crackdown. New York previously issued a cease and desist letter to Kalshi in late October, prompting the platform to file its own lawsuit shortly thereafter. Similar actions have been observed in Massachusetts, where the Attorney General has taken legal steps against Kalshi, along with cease and desist orders issued from states including Arizona, Illinois, Montana, and Ohio this year. Additionally, Kalshi faces litigation in New Jersey, Maryland, and Nevada, where a federal judge recently affirmed the jurisdiction of state regulators over certain sports-based event contracts.
Kalshi recently secured a significant $1 billion funding round at an $11 billion valuation, marking its strongest monthly trading activity in November, despite the ongoing legal hurdles. Crypto.com, which is also embroiled in this regulatory saga, has yet to respond publicly to the cease and desist orders issued by the state.
As the landscape for sports betting and prediction markets continues to evolve, the actions taken by Connecticut are indicative of a broader regulatory movement aimed at safeguarding consumers and maintaining the integrity of betting practices. The outcomes of these legal clashes will undoubtedly shape the future of prediction markets and their relationship with state regulations.
