Robinhood and Kalshi Ordered to Cease Operations in New Jersey

Robinhood and Kalshi Under Regulatory Scrutiny: NJ Department of Gaming Enforcement Issues Cease-and-Desist Orders

In a significant move that underscores the regulatory complexities of the gambling industry, the New Jersey Department of Gaming Enforcement (NJDGE) has issued cease-and-desist letters to both Robinhood and Kalshi regarding their online sports events contracts. These companies have been given until 11:59 p.m. ET on Friday to adhere to the NJDGE’s directives.

Charges Against Robinhood and Kalshi

The NJDGE’s letters addressed to Kalshi’s CEO, Tarek Mansour, and Robinhood’s CEO, Vlad Tenev, accused both platforms of engaging in “unauthorized sports wagering” within the state. According to the NJDGE, this practice breaches the New Jersey Sports Wagering Act, which limits the offering of sports betting to licensed entities. Notably, the law prohibits betting on collegiate events occurring within New Jersey.

The gravity of these violations is heightened by the timing of the letters, which were sent just hours before the NCAA men’s basketball East Regional commenced at the Prudential Center in Newark, NJ.

Legal Implications for New Jersey Residents

The NJDGE’s enforcement action is reflective of New Jersey’s strict regulations surrounding sports betting. Under state law, residents are barred from wagering on any in-state collegiate teams and on any events hosted within state boundaries. Failure to comply with NJDGE’s orders could result in further legal actions, potentially encompassing any measures permitted under state law.

Kalshi’s Entry into Sports Betting and Recent Developments

Kalshi has recently expanded its offerings by introducing single-game betting markets for March Madness, accessible in all 50 states. Notably, Kalshi operates as an exchange, allowing participants to bet against each other rather than against a house edge. Earlier this year, the company made its initial foray into the sports betting landscape during the Super Bowl, showcasing its ambition to capture market share in a growing sector.

In partnership with Robinhood, Kalshi also initiated “sports event trading” focused on both men’s and women’s tournaments. However, the NJDGE has mandated that both companies void any wagers that have already been placed, demonstrating the regulatory body’s firm stance against unauthorized betting mechanisms.

Kalshi’s Challenges in Other States

Adding to Kalshi’s regulatory woes, the company is currently facing cease-and-desist orders in Nevada. The Nevada Gaming Control Board asserted that Kalshi is in violation of several state laws governing sports and election odds. The Board’s Chairman, Kirk D. Hendrick, emphasized that all sports pools in Nevada must undergo rigorous scrutiny in order to obtain licensing and comply with stringent regulations. Any efforts to bypass Nevada’s regulatory framework will be met with severe penalties.

Originally, Kalshi had a compliance deadline set for March 14, which has since been extended amid ongoing investigations.

Ongoing Investigations into Robinhood

In addition to the regulatory actions taken by the NJDGE, Robinhood is currently under investigation in Massachusetts for its facilitation of bets on various outcomes, including events associated with March Madness. This scrutiny exemplifies the growing concern among regulators regarding the intersection of trading and sports betting.

In conclusion, both Robinhood and Kalshi are navigating a minefield of regulatory challenges as they attempt to innovate within the sports betting sector. Their experiences serve as critical case studies for other emerging platforms looking to operate in the tightly regulated gambling landscape. As the industry continues to evolve, adherence to legal standards will be paramount for sustainable success.