The New Jersey Division of Gaming Enforcement (NJDGE) has issued cease-and-desist orders to prediction market platform Kalshi and financial trading firm Robinhood, demanding that they immediately cease offering sports wagering services in the state. The regulatory action, confirmed Thursday, cites violations of New Jersey’s strict sports betting laws and requires both platforms to void any wagers placed by New Jersey residents.

The NJDGE asserts that Kalshi and Robinhood are operating without the necessary state-level authorization, violating the New Jersey Sports Wagering Act. Both companies were given a deadline of 11:59 p.m. on Friday to comply or face potential legal consequences.

The Allegations Against Kalshi and Robinhood

In the cease-and-desist letter addressed to Kalshi CEO Tarek Mansour, which was first published by The Closing Line, NJDGE Interim Director Mary Jo Flaherty stated that Kalshi had been found to list unauthorized sports wagers accessible to individuals in New Jersey. Specifically, the letter pointed to Kalshi’s involvement in offering prediction markets on collegiate sporting events, including matchups taking place in the state, which directly contravenes the New Jersey Constitution.

“Further, Kalshi is currently offering unauthorized sports wagering to New Jersey residents on collegiate sporting events occurring in New Jersey in violation of the New Jersey Constitution,” the letter states. “That constitutional provision mandates that ‘wagering shall not be permitted on a college sport or athletic event that takes place in New Jersey or on a sport or athletic event in which any New Jersey college team participates regardless of where the event takes place.’”

Similarly, Robinhood CEO Vlad Tenev received such a letter in which his company was accused of enabling sports event trading through its platform in collaboration with Kalshi. The NJDGE’s letter required both platforms to provide written confirmation by the deadline that they had ceased all sports wagering operations targeting New Jersey residents.

The Rise of Sports Event Trading and Regulatory Pushback

Kalshi, launched in 2021, has positioned itself as a federally regulated financial exchange allowing users to trade event contracts on various real-world events. Recently, the platform introduced sports-related markets, starting with futures trading on major events such as the Super Bowl before expanding to include March Madness matchups.

Last week, Kalshi partnered with Robinhood to offer a new feature called “sports event trading” for the NCAA men’s and women’s basketball tournaments. These markets, marketed as event contracts rather than traditional wagers, allow users to buy and sell positions based on game outcomes through an exchange model, rather than against a bookmaker.

Despite Kalshi operating under the oversight of the Commodity Futures Trading Commission (CFTC), state regulators in New Jersey argue that these offerings constitute unauthorized sports betting under state law. The NJDGE’s position aligns with similar regulatory challenges Kalshi and Robinhood are facing in other jurisdictions.

Broader Regulatory Scrutiny

New Jersey is not the first state to take action against Kalshi’s sports trading markets. Earlier this month, Nevada issued a cease-and-desist order against Kalshi, though enforcement measures have yet to be implemented. Additionally, Robinhood is under investigation by the Massachusetts Securities Division concerning potential violations of state securities laws related to its involvement in sports prediction markets.

The introduction of sports event contracts represents a growing overlap between financial trading and traditional sports betting, prompting legal scrutiny from regulators across multiple states. While Kalshi and Robinhood maintain that their offerings differ from conventional sports gambling, regulatory bodies remain unconvinced.

Official Responses from Kalshi and Robinhood

In response to the NJDGE’s order, Kalshi reaffirmed its commitment to regulatory compliance while signaling a willingness to engage with state officials to resolve the matter. “Kalshi believes in the value of regulation and operates under the comprehensive oversight of the Commodity Futures Trading Commission. We look forward to engaging with the state of New Jersey to resolve this matter,” a Kalshi spokesperson stated.

Robinhood also defended its position, arguing that its event contracts comply with federal regulations. “Event contracts offered by Robinhood Derivatives are federally regulated by the CFTC and offered through CFTC-registered entities, assuring that retail customers can access these prediction markets in a safe and regulated manner,” a Robinhood spokesperson said. However, the company also acknowledged that it had halted new positions for the NCAA basketball tournament contracts in New Jersey to comply with the order.