Robinhood Derivatives, the operator of a popular stock trading app, on Monday filed a lawsuit asking a judge to block the Massachusetts state attorney general from interfering with one of its affiliates.
The suit, filed in US District Court in Boston, comes days after Attorney General Andrea Joy Campbell filed a lawsuit in state court against that affiliate, Kalshi, a self-described online “prediction market.”
The attorney general’s suit accuses Kalshi of operating online sports betting without a license from the state Gaming Commission.
In its suit, Robinhood says it is dependent on Kalshi: “While Robinhood facilitates the placement and liquidation of event contracts for its customers, the contracts themselves trade on Kashi.”
“Robinhood therefore had no choice but to file this lawsuit to protect its customers and its business,” the Robinhood suit says.
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Otherwise, “Massachusetts customers would face abruptly losing access to sports-related event contract trading through their Robinhood account,” the suit says.
Robinhood says federal law — not state law —governs Kalshi’s operation. Under the federal Commodity Exchange Act, “Massachusetts law is preempted” by a “comprehensive federal framework for regulating commodity futures and swaps trading,” the suit says.
Robinhood says in its suit that Kalshi has won preliminary relief against state gaming regulators in New Jersey and Nevada, based on its contention that federal law is controlling.
Prediction markets operate like financial futures markets, allowing participants to buy and sell contracts based on their expectations. During the last election, for example, people could buy contracts for President Trump or former vice president Kamala Harris, with the contract prices, or odds, set according to which candidate investors favored. (Trump buyers cashed in their contracts. Harris buyers lost their investment.)
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Kalshi, a New York-based prediction market, uses a similar approach to allow people to bet on the outcome of sporting events.
But Campbell says Kalshi is operating outside of the law.
“If Kalshi wants to be in the sports gaming business in Massachusetts, [it] must obtain a license and follow our laws,” Campbell said in a press release after filing the lawsuit last week in Suffolk Superior Court.
“Sports wagering comes with significant risk of addiction and financial loss” and must be strictly regulated to reduce public health consequences, Campbell said.
Jordan Maynard, chair of the state Gaming Commission, said in a statement that prediction market companies “are expanding into sports wagering while neglecting age restrictions, player protection programs, state taxes, and other consumer protections.”
In addition, Secretary of State William Galvin, the state’s chief regulator of securities markets, has opened an investigation into Robinhood‘s sports wagering contracts, a spokesperson said. Galvin has previously issued complaints over Robinhood‘s stock trading app.
Got a problem? Send your consumer issue to sean.murphy@globe.com. Follow him @spmurphyboston.