Robinhood has filed a lawsuit in Washington seeking relief against officials from agencies including the Washington State Gambling Commission and the state attorney general.
The lawsuit, filed in the US District Court for the Western District, demonstrates the growing struggle between prediction markets and state authorities.
The question in this case centres around whether event contracts should be regulated exclusively under federal law, which is the assertion of the prediction market operators, or whether state laws around gambling should also be imposed.
According to Robinhood, the company only facilitates trading in event contracts that are regulated under federal law, including those regulated by federal exchanges.
The company maintains that the existing federal framework governing prediction markets preempts any attempt by Washington to classify the activity as illegal gambling.
The lawsuit cites the example of Washington State’s recent action against Kalshi. Local authorities argued that Kalshi’s operations amount to illegal online gambling and have requested penalties, restitution, and an injunction.
Robinhood states that the risk to its business is real because the same action could be taken against its own operations, as it routes customer trades through Kalshi and other exchanges.
Its filing frames the dispute as a fundamental jurisdictional conflict.
The company, as it and Kalshi have done in previous litigious filings, argues that Congress has established a comprehensive and exclusive regulatory regime for derivatives markets including event contracts through the Commodity Exchange Act.
It asserts that allowing individual states to impose separate restrictions would fragment a nationally uniform system and disrupt market liquidity.
Robinhood: Binary instruments are not betting
The complaint describes how event contracts operate in financial markets. This type of contract is a binary instrument tied to a physical event.
Prices fluctuate depending on what individuals believe the probabilities are, allowing them to speculate and mitigate risks.
State officials, meanwhile, have asserted that even though the federal government regulates the vertical, the state is still free to enforce its own gambling laws.
This has been reinforced through legal actions filed jointly with other states in the appellate courts.
The legal action filed by Robinhood illustrates the potential consequences that may be felt if local regulations are enforced on top of federal oversight.
The potential damage to its own reputation, the erosion of customer trust, and the operational difficulties that may be felt are just a few of the arguments presented.
Robinhood also argues there is also the potential for its customers to lose access to open positions, and that it may be forced to close positions at unfavourable prices to traders.
Prediction market legal challenges continue to mount
As financial innovation continues to blur the line between trading and wagering, courts are increasingly being asked to define the boundaries between federal derivatives regulation and state gambling authority.
This is not the first time Robinhood has turned to litigation in response to state-level challenges. In Massachusetts, the company previously contested regulatory efforts targeting its event contract offerings.
After an initial setback in which a federal judge dismissed the case as premature, the dispute was revived in January 2026 following Robinhood’s expansion to a second exchange, ForecastEx.
The company subsequently sought a preliminary injunction to prevent the application of state gambling laws, and the matter remains pending as courts consider next steps.
A separate but related case is unfolding in New Jersey. There, Robinhood’s legal position is closely tied to parallel litigation involving Kalshi.
The outcome of KalshiEx LLC v. Flaherty, currently before the Third Circuit Court of Appeals, is expected to play a decisive role.
The appellate court’s forthcoming ruling on whether states can ban federally regulated event contracts will likely determine how the New Jersey case proceeds, with the district court effectively waiting for that decision before advancing.