Robinhood, Kalshi & Crypto.com Accused of Operating Illegal Gambling Rings

Three major platforms just got slapped with cease-and-desist orders. Connecticut regulators aren’t playing games when it comes to what they’re calling illegal gambling operations disguised as prediction markets.

The Connecticut Department of Consumer Protection dropped the hammer on Wednesday, ordering Robinhood, Kalshi, and Crypto.com to immediately stop offering sports event contracts to state residents. The message was clear: get licensed or get out.

State Regulators Draw The Line

Connecticut’s Gaming Division sent letters claiming these platforms are running unlicensed sports wagering operations that violate state law.

The platforms must let Connecticut users withdraw their funds immediately. Failure to comply could trigger civil penalties and potential criminal action. That’s a serious escalation in the ongoing battle between state gambling authorities and federally regulated prediction markets.

Only three operators hold legal sports betting licenses in Connecticut: DraftKings through Foxwoods, FanDuel through Mohegan Sun, and Fanatics through the Connecticut Lottery. Everyone else is operating in a gray zone that regulators are rapidly turning black and white.

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The Federal vs State Showdown

Here’s where things get messy. These platforms argue they’re already regulated at the federal level by the Commodity Futures Trading Commission. Kalshi stated that Connecticut’s attempt to regulate intrudes upon the federal framework Congress established for derivatives on designated exchanges.

Robinhood echoed the same defense. The company maintains that its event contracts are federally regulated through Robinhood Derivatives, a CFTC-registered entity. Crypto.com hasn’t publicly commented yet, but the company’s Derivatives North America division also holds CFTC registration.

The platforms believe federal oversight trumps state jurisdiction. Connecticut regulators disagree. This isn’t just a local dispute playing out in one state.

A National Pattern Emerges

Connecticut is the tenth state to file complaints against these platforms. New York sent Kalshi a cease-and-desist letter in late October, prompting the company to sue the state. Massachusetts filed suit in September. Arizona, Montana, Ohio, Illinois, Nevada, and New Jersey have all taken similar actions.

A Nevada court recently ruled that Kalshi’s CFTC registration doesn’t preempt state oversight. That decision threatens the entire industry’s legal strategy. If federal regulation doesn’t shield them from state gambling laws, these platforms face a patchwork of 51 different regulatory schemes.

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The Timing Couldn’t Be Worse (Or Better)

The irony here is thick. On the same day Connecticut issued its order, Crypto.com announced Fanatics Markets, a new prediction platform launching in 10 states. The company plans to expand to 24 states, including California, Texas, and Florida.

Kalshi isn’t backing down either. The platform just closed a $1 billion funding round at an $11 billion valuation and saw a record trading volume of $4.54 billion in November. Money keeps flowing in despite mounting legal pressure.

But there’s a problem with their business model that regulators keep pointing out. According to data from the Dune dashboard, roughly 74% of bets on Kalshi are for sports-related markets. That makes it hard to argue these aren’t sports betting platforms.

What’s Really At Stake

State officials warn that these unlicensed platforms create serious consumer risks. Because they’re not licensed, platforms aren’t required to meet Connecticut’s technical standards for wagering systems, leaving financial and personal data more exposed.

There are no mandated integrity controls either. Licensed operators must use controls to block known insiders and monitor suspicious betting patterns, but unlicensed platforms face no such requirements.

Gaming Director Kris Gilman accused the firms of deceptively advertising their services as legal. The state argues users have no recourse if bets get settled in unexpected ways or winnings are withheld.

The Class Action Pileup

Legal troubles keep multiplying. Seven users filed a class action lawsuit in New York’s Southern District Court alleging that Kalshi operates an illegal online sports betting platform. The suit claims market makers get unfair advantages through unique contractual and technological integration.

Kalshi called the allegations baseless fiction. Co-founder Luana Lopes Lara defended the platform on social media, arguing it’s a peer-to-peer exchange without a house advantage.

What Happens Next?

These platforms show no signs of stopping operations. Kalshi is suing Connecticut in federal court, seeking emergency injunctions. The company has filed similar suits in New York and other states challenging their jurisdiction.

The outcome will likely determine the future of prediction markets in America. If states win, platforms must get licensed in each jurisdiction or shut down. If federal courts side with the platforms, state gambling regulators lose authority over these products.

Traditional sportsbooks are watching closely. DraftKings already acquired a CFTC-regulated platform and plans to launch DraftKings Predictions. FanDuel announced similar plans. Licensed operators want the same flexibility without the regulatory burden.

The battle lines are drawn. One side calls it innovation in financial markets. The other calls it illegal gambling with a fresh coat of paint.

Why did Connecticut target these specific platforms? 

Connecticut focused on platforms offering sports event contracts to state residents without gaming licenses, viewing them as illegal sports betting operations rather than legitimate financial products.

Can users in Connecticut still access their funds? 

Yes, the cease-and-desist orders require all three platforms to allow Connecticut residents to withdraw their funds immediately.

What makes prediction markets different from sports betting? 

Prediction markets claim they’re derivatives regulated by the CFTC, similar to commodity futures. State regulators argue that when 74% of trades involve sports outcomes, it’s just sports betting with different branding.

Will other states follow Connecticut’s lead? 

Likely yes. Ten states have already taken action, and a coalition of 34 state attorneys general filed a brief supporting New Jersey’s case against Kalshi, suggesting broader coordination among state regulators.

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