Robinhood Sues Washington Regulators Over Control Of Event Contracts

Robinhood has filed a lawsuit against Washington to seek relief from agencies including the Washington State Gambling Commission and the state attorney general. The case, filed in the US District Court for the Western District, reflects a widening conflict between prediction market operators and state regulators.

At the centre of the dispute is a jurisdictional question. Robinhood argues that event contracts fall under federal regulation while Washington authorities maintain that state gambling laws can still apply.

The company states that it facilitates trading in event contracts that are already regulated under federal frameworks, including those listed on approved exchanges. It claims that these federal rules preempt state attempts to classify the activity as illegal gambling.

This lawsuit references enforcement action taken by Washington against Kalshi. Authorities state that the platform’s services were considered unlawful online betting. The state has sought penalties, restitution, and an injunction.

Robinhood highlighted that the same approach could be extended to its own operations, since it routes customer trades through Kalshi and other exchanges.

Federal preemption argument anchors Robinhood’s legal strategy

Robinhood frames the dispute as a fundamental clash between federal and state authority. The company argues that Congress has already created a comprehensive regulatory system for derivatives markets, including event contracts, through the Commodity Exchange Act.

If a national framework exists, allowing individual states to impose their own restrictions would fragment the system and affect market liquidity. 

The company positions event contracts as financial instruments. In its complaint, these contracts are explained as binary instruments tied to real-world outcomes. Prices move based on perceived probabilities, allowing participants to speculate or hedge risk.

State regulators do not accept this framing. They assert that states should also have a say despite the federal legislation. This position has been reinforced through coordinated legal actions involving multiple states.

Business risks and customer impact highlighted in complaint

Robinhood’s filing warns that state-level enforcement could damage its reputation and weaken customer trust, especially if users begin to see its products as legally uncertain.

Also, the company states that if state restrictions are applied, it could be forced to halt trading or close open positions. This could push traders into closing positions at unfavourable prices.

Customers may lose the ability to maintain or manage existing contracts if regulatory action interrupts trading activity. For a platform built on continuous market participation, this affects user confidence and platform stability.

Parallel cases and broader pressure on prediction markets

Courts are increasingly being asked to define where financial trading ends and gambling begins, especially as new products blur traditional categories.

Robinhood has faced similar disputes before. In Massachusetts, the company challenged regulatory efforts against its event contract offerings. A federal judge initially dismissed the case as premature, but it was revived in January 2026 after the company expanded to a second exchange, ForecastEx. The company has since sought a preliminary injunction, and the matter remains unresolved.

A related case is unfolding in New Jersey, where Robinhood’s arguments align closely with those made by Kalshi. The outcome of KalshiEx LLC v. Flaherty, now before the Third Circuit Court of Appeals, is expected to influence proceedings.

The appellate court is set to rule on whether states can restrict federally regulated event contracts. This decision will likely inform next steps for the New Jersey case, as the district court awaits the final verdict.