The US state of Connecticut has issued cease and desist orders to Robinhood, Kalshi, and Crypto.com, alleging that these platforms are engaging in unlicensed sports betting through event contracts.
The Connecticut Department of Consumer Protection (DCP) sent notices to the three companies on Wednesday, asserting that they were “conducting unlicensed online gambling, specifically sports wagering,” through event contracts available online.
“None of these entities hold a license to offer wagering in our state, and even if they did, their contracts would violate numerous other state laws and regulations, including allowing wagers from individuals under 21,” stated DCP Commissioner Bryan Cafferelli.
DCP Gaming Director Kris Gilman accused the platforms of “misleadingly advertising their services as legal,” noting that they operate outside of the state’s regulatory framework, “posing significant risks to consumers who may not be aware that bets placed on these illegal platforms lack protections for their funds or information.”
Prediction markets have faced legal challenges in several US states, as their use has exploded this year, drawing in billions of dollars in investments by allowing users to bet on the outcomes of various events.
Kalshi responds legally
A representative from Kalshi informed Cointelegraph that it operates “as a regulated, nationwide exchange for real-world events, governed by federal jurisdiction.” “This is distinctly different from the offerings of state-regulated sportsbooks and casinos. We firmly believe in our legal position and have initiated a lawsuit in federal court,” Kalshi continued.
In a complaint filed on Wednesday against the DCP, Kalshi argued that “Connecticut’s bid to regulate Kalshi encroaches upon the federal regulatory framework established by Congress for overseeing derivatives on designated exchanges.”
It added that their platform is under the Commodity Futures Trading Commission’s “exclusive jurisdiction” and its sports event contracts “are compliant with federal law.”
Crypto.com and Robinhood did not respond promptly to requests for comments.
In its announcement, Connecticut’s DCP emphasized that prediction market platforms present significant risks to consumers, as they lack the necessary technical standards and security measures for financial and personal data.
The agency claimed such platforms also lack integrity controls to prevent insider betting or manipulation, operate without regulatory oversight of their payout procedures, market to self-excluded gamblers and college campuses, and permit betting on events with predetermined outcomes, which can disadvantage outsiders.
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Only three platforms are legally authorized for sports wagering in Connecticut: DraftKings, FanDuel, and Fanatics, all of which mandate users to be at least 21 years old.
Kalshi facing scrutiny in multiple US states
Connecticut is not alone in its strict approach to prediction platforms, as regulators in two bordering states have also taken action.
New York issued a cease and desist to Kalshi in late October, and the company countered on Oct. 27 by filing a lawsuit against the state. Meanwhile, the Massachusetts state attorney general filed suit against Kalshi in state court in September.
Kalshi has additionally received cease and desist orders from Arizona, Illinois, Montana, and Ohio this year, and is involved in ongoing litigation in New Jersey, Maryland, and Nevada, as reported by Bookies.
This week, Kalshi announced it closed a $1 billion funding round at a valuation of $11 billion, following its highest monthly volume ever in November.
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