In a significant move, Connecticut’s consumer protection agency has instructed Robinhood, Crypto.com, and Kalshi to cease offering sports event contracts to residents of the state. This warning comes with the implication that continuing their operations could lead to civil penalties and potential criminal consequences under the state’s gaming laws. The directive highlights ongoing legal debates regarding whether prediction markets should be classified under gambling regulations or federal derivatives oversight.
Cease-and-Desist Orders Issued
Connecticut’s Department of Consumer Protection has mandated Robinhood, Crypto.com, and the prediction market platform Kalshi to stop their activities, which the agency has categorized as unauthorized online sports gambling within the state. In a statement released on Wednesday, the Gaming Division of the agency indicated that cease-and-desist letters were sent to all three companies, instructing them to discontinue offering “sports event contracts” to residents and to facilitate the withdrawal of funds for local users. The department cautioned that failure to comply could lead to civil penalties and criminal actions in accordance with state gaming and consumer protection laws.
Licensing and Legal Violations
Commissioner Bryan T. Cafferelli of the Department of Consumer Protection emphasized that only licensed entities are permitted to offer sports wagering in Connecticut, and none of the involved platforms hold the necessary licenses. He further noted that even if they possessed such licenses, their contracts would still breach several other state laws and regulations. This action intensifies a national debate surrounding the regulation of app-based prediction markets, questioning whether they should be classified as gambling products under state law or as derivatives subject to federal regulations.
Kalshi’s Unique Position
In response to the cease-and-desist order, a spokesperson for Kalshi stated that the platform operates as a regulated nationwide exchange for real-world events, and thus falls under exclusive federal jurisdiction. They emphasized that Kalshi’s offerings differ significantly from those provided by state-regulated sportsbooks and casinos, and indicated that they are pursuing legal action in federal court. Notably, around 74% of the bets placed on Kalshi are related to sports markets, according to data from Dune.
Ongoing Federal Legal Challenges
This cease-and-desist order arrives amidst ongoing discussions regarding gambling law compliance and federal derivatives regulations. Recently, Kalshi secured a favorable ruling in Nevada when a federal judge determined that the platform could not be prosecuted under the state’s gambling laws while it contests regulatory decisions. Meanwhile, in October, a federal court denied Crypto.com’s request for a preliminary injunction, leading the platform to agree to halt all sports-event market activities in Nevada during its appeal process.
Connecticut’s Gambling Legislation
Connecticut’s contemporary online gambling framework originated from SB 146, introduced during the 2021 legislative session, which permitted online sports betting, casino gaming, lottery sales, and keno under a stringent licensing system. The legislation specified that only three “master wagering license” holders could operate within the state: the Mashantucket Pequot Tribal Nation, the Mohegan Tribe, and the Connecticut Lottery Corporation. This statutory framework was later enacted as Public Act 21-23, which formalized amendments to tribal-state compacts, granting the tribes exclusive rights to online casino operations and two of the three sports betting licenses, while designating the third license to the state lottery. Following the law’s passage and federal approval of the compact amendments by the Department of the Interior, the Connecticut Department of Consumer Protection issued comprehensive regulations in February 2022.
