Missouri Cease-and-Desist Leads to Robinhood Lawsuit

• Robinhood filed a lawsuit against the state of Missouri and Attorney General Catherine L. Hanaway
• Similar to a recent lawsuit filed by Kalshi, Robinhood points to a cease-and-desist notice as the impetus of the litigation
• Robinhood requests a temporary restraining order, preliminary inunction, and permanent injunction against the state

Robinhood is suing the state of Missouri and Attorney General Catherine L. Hanaway to prohibit the state from enforcing its gambling laws against the prediction market company’s event contracts.

Robinhood filed its lawsuit in U.S. District Court for the Eastern District of Missouri, requesting a temporary restraining order, preliminary injunction, and permanent injunction against the state from enforcing its gambling laws against the company’s prediction market offerings.

The company cited Missouri’s Sep. 16 cease-and-desist notice demanding Robinhood stop offering its sports events contracts in the state or obtain a Mission Gaming Commission license as the impetus for the lawsuit.

Preempted by Commodity Exchange Act

Counsel for Robinhood noted in its lawsuit that Missouri law is preempted by the Commodity Exchange Act (CEA) for regulating commodity futures and swaps trading, pointing to the Third Circuit’s ruling that affirmed a motion granting Kalshi a temporary restraining order and preliminary injunction in New Jersey

Robinhood asserts that the Commodity Futures Trading Commission (CFTC) has comprehensive regulation of derivatives trading and event contracts listed on CFTC-regulated DCMs. Missouri’s gaming laws simply do not apply, counsel noted.

“Missouri’s position rests on the premise that, despite express federal preemption and the CFTC’s comprehensive regulation of derivatives trading, event contracts listed on CFTC-regulated DCMs and facilitated by CFTC-registered FCMs constitute ‘wagering’ subject to Missouri gaming laws. That premise cannot be reconciled with the CEA. Congress vested the CFTC with ‘exclusive jurisdiction’ over DCMs and the products traded on them precisely to establish a single, uniform national derivatives market. Federal courts have long recognized that the CFTC’s regulation of the national derivatives market is exclusive and preempts state involvement,” Robinhood counsel wrote in the lawsuit.

Robinhood counsel claims Missouri is likely in violation of the Supremacy Clause, which mandates that federal law preempt state law in “any field over which Congress has expressly or impliedly reserved exclusive authority to the federal government and to the extent state law conflicts with federal law.”

Similar to Kalshi Lawsuit

Robinhood’s filed lawsuit is similar to one Kalshi levied against the state in late October.

Kalshi also filed its lawsuit against the state of Missouri and Attorney General Hanaway after receiving its own a cease-and-desist notice to pull its sports event contracts from the Show-Me State.

In addition to its claim that the CEA preempts state laws when it comes to event contracts, Kalshi also asserted that no Missouri sports betting license is “realistically available” to the company. The Missouri Gaming Commission only authorizes retail and online sports betting licenses. Retail licenses are only available for those with casino licenses and online sports betting licenses are only available to licensed casino operators, professional sports teams, or sports betting operators acting on behalf of either pursuant to a commercial agreement.

“Even if Kalshi could obtain a license, which it cannot under Missouri’s own regime, it could not operate within that regime without jeopardizing its federal designation. Missouri law requires licensed operators to comply with a host of state-specific restrictions that cannot be reconciled with the CEA,” counsel wrote in the lawsuit.