The New Jersey Division of Gaming Enforcement (the Division) has given Robinhood and Kalshi until the end of the day to cease and void all sports-focused contracts in the state.
Robinhood and Kalshi are having a ‘March Madness’ in their own right, with the firms’ events contracts attracting more legislative action. Yesterday, Mary Jo Flaherty, Interim Director of the Division, sent a cease and desist letter to both companies’ CEOs, Vlad Tenev of Robinhood and Tarek Mansour of Kalshi.
The letters, seen by The Closing Line, allege that both firms are listing unauthorised sports wagers for individuals located in New Jersey. These “sports wagers” refer to the firms’ futures contracts, which allow people to speculate on “yes” or “no” outcomes.
An excerpt of the letter to Mansour reads: “This activity constitutes a violation of the New Jersey Sports Wagering Act, which only permits licensed entities to offer sports wagering to patrons located in New Jersey. See generally N.J.S.A. 5:12A-11.”
Another alleged violation of the state’s gambling legislation relates to the sports competitions that contracts are being offered on. New Jersey prohibits operators from offering residents wagers on collegiate sporting events, pointing to N.J. Const. Art. IV, §7, ¶2(D).
The Division wrote: “That constitutional provision mandates that ‘wagering shall not be permitted on a college sport or athletic event that takes place in New Jersey or on a sport or athletic event in which any New Jersey college team participates regardless of where the event takes place.”
Robinhood and Kalshi are set to generate significant revenue from these contracts on college games, with SBC Americas reporting that Kalshi’s platform shows well in excess of $200m worth of March Madness contracts created for the first two rounds of the tournaments.
State scrutiny grows beyond New Jersey
Robinhood launched its predictions hub at the beginning of this month, initially allowing customers to trade contracts on what the upper bound of the target fed funds rate will be in May, as well as the men’s and women’s College Basketball Tournaments.
The firm stated at the time of launch that it had discussed the products with the Commodity Futures Trading Commission (CFTC) in the months prior. However, Robinhood has already faced criticisms of its collegiate offering, with Massachusetts Secretary of State Bill Galvin describing the hub as a “gimmick from a company that’s very good at gimmicks”.
Galvin, who has a reputation as one of the more aggressive state securities regulators, took particular aim at the firm’s decision to target college basketball competitions. He raised concerns about tying gambling-esque products to investment platforms, particularly for events with younger audiences.
His office started an investigation into Robinhood earlier this month, issuing a subpoena for copies of its marketing materials and requesting the company to identify all state residents with brokerage accounts who expressed interest in trading college sports event contracts.
Despite this scrutiny at the state level, it is important to note that the CFTC has allowed Robinhood to offer such products, provided they’re run through a CFTC-registered entity, which in this case is Kalshi.
This wasn’t always the case, however. As Robinhood launched and shut down its event contracts for the recent Super Bowl in the space of 24 hours. Since then, Robinhood has asserted it has kept in close contact with the CFTC, working with the agency to find a solution.
However, sceptics believe that President Donald Trump’s choice of Brian Quintenz to head the CFTC is the real reason for this change of heart. Quintez previously served on Kalshi’s board of directors, and the president’s son, Donald Trump Jr., is reportedly on its board of advisors.
Nevertheless, the two firms’ troubles continue at the state level. The Division has threatened sanctions and further legal action if they fail to comply with the deadline.
“The Division reserves the right to pursue any appropriate sanctions if you fail to take immediate corrective action as demanded herein. Please confirm in writing by Friday, March 28, 2025, by no later than 11:59 pm, that you have ceased all sports wagering activities targeting New Jersey residents and voided all such wagers placed in New Jersey,” the letter concluded.
“Failure to comply with this directive will result in the Division taking further enforcement actions, which may include any measures available under New Jersey law.”
