A news class-action lawsuit accused Robinhood of using prediction markets to provide its customers with an illegal form of sports betting.
Georgia resident Matthew Mazza submitted the complaint to the U.S. District Court for the Northern District of California last Wednesday. Robinhood Markets Inc. and Robinhood Derivatives LLC were named as defendants in the case, which centers on the availability of sports event contracts offered to prediction traders.
What does the lawsuit claim?
While prediction platforms have faced pushback from state gaming officials, they have not dealt with much private litigation.
Mazza, who claims to have lost $400,000 through Robinhood’s prediction markets, said that contracts offered by the platform represented illegal sports betting, according to state law.
“As a direct and proximate result of defendants’ conduct, plaintiff and members of the class and/or state subclasses suffered substantial monetary losses through speculative contracts and wagering transactions that would not have occurred absent defendants’ unlawful operation and inducement of gambling activity,” the complaint reads.
Mazza also accused Robinhood of misleading consumers by failing to properly warn of the financial dangers of sports event trading.
“Defendants’ marketing and user-interface design do not adequately communicate the practical reality that customers, including Plaintiff and the Class, may be using their Robinhood securities portfolios as collateral to engage in highly speculative event-contract trading for which there is no corollary underlying collateral (like an investment in gold) or ownership interest (like stock in a company) and that can rapidly erode equity in the user’s financial securities account,” the lawsuit states.
Personal offers and illegal operations
Sportsbooks often create and offer rewards tailored to customers based on their betting preferences, whether that be bonus bets, bet-to-wins, safety nets, or other opportunities.
Mazza accused Robinhood of targeting with a similar set of incentives, which includes deposit matches and bonus funds. He said these offers went beyond simply extending offers to customers and put individuals, including those showing signs of addiction or financial issues, in serious danger.
Finally, he claimed that Robinhood’s sports prediction markets exposed consumers to a form of betting directly within their financial accounts, which made it easy for them to suffer substantial financial losses.
Looking for relief
In support of his lawsuit, Mazza — who said he lost approximately $400,000 from 2025-26 — referenced past and ongoing legal battles in multiple states where gaming regulators accused prediction operators of acting as unlicensed sports betting outfits. He also cited Georgia consumer protection laws and California unfair competition statutes.
Mazza’s goal is to create a national certification class and force Robinhood to pay reparations to individuals who lost money by trading its sports event contracts. He also wants the company to return all illegally obtained profits, pay compensatory damages, and for officials to declare sports event contracts illegal.
As Mazza prepares for his upcoming case against Robinhood, prediction markets are surging in popularity. Top prediction operator Kalshi reported $6.2 billion in trading volume for the week that ended on June 14, a number that shows the company could soon rival the top sports betting operators in the country.
The Trade Handle Prediction Markets Take
The Commodity Futures Trading Commission (CFTC) — the federal body in charge of regulating prediction platforms — has thrown its weight behind prediction outlets in their fight to offer sports event contracts. The CFTC’s new proposed rule set greenlit sports markets, while the board’s chair, Michael S. Selig, recently sought legal action against state officials who attempted to limit prediction operators. Mazza will have a tough time overcoming that precedent, even if most state officials probably hope that his suit is successful.