Robinhood Sues States in Showdown Over Event Contracts

Robinhood argued that rulings in favor of prediction market Kalshi should also extend to its own offerings. The company claims regulators’ refusal to honor those rulings leaves it at a competitive disadvantage and forces it to seek judicial protection. Meanwhile, Trump-affiliated investment partner ALT5 Sigma denied reports that venture capitalist Jon Isaac was under SEC investigation for earnings inflation and insider trading tied to a $1.5 billion deal. Although the firm and Isaac dismissed the rumors as factually inaccurate, the news triggered a sharp 10.5% plunge in ALT5’s share price.

Robinhood Battles States on Event Contracts

Robinhood’s derivatives arm launched legal action against regulators in Nevada and New Jersey in an attempt to prevent potential enforcement measures over its sports event contracts. In two separate complaints that were filed on Tuesday, the company argued that it should be able to offer these contracts after recent federal court rulings allowed prediction market Kalshi to do so. Robinhood claims that despite those rulings, regulators in both states continued to threaten enforcement action, which put it at a disadvantage compared to Kalshi.

(Source: CourtListener)

The dispute stems from event contracts, which allow users to speculate on outcomes of events like sports games or elections. These contracts have their roots in prediction markets and often rely on blockchain technology for transparency and accurate settlement. 

Kalshi also previously sued regulators in Nevada and New Jersey, and argued that cease-and-desist letters from the states were invalid because the platform is regulated at the federal level by the Commodity Futures Trading Commission (CFTC). Federal courts in both states sided with Kalshi, ruling that state regulators could not take enforcement actions against it, though the lawsuits are still ongoing.

Robinhood said that if it is barred from offering the same contracts that Kalshi can, it risks losing market share. The company believes that regulators’ refusal to accept the courts’ decisions leaves it with no choice but to seek judicial protection for both its customers and its business. 

In New Jersey, Robinhood alleged that after contacting the state’s Division of Gaming Enforcement to explain its case, officials refused to agree not to pursue enforcement action and ignored follow-up requests for a meeting. Similarly, in Nevada, the Gaming Control Board reportedly told the company that offering such contracts would be considered “wilful violations” of state law, even after a federal court ruling favored Kalshi.

In response, Robinhood is seeking court orders to block regulators in both states from acting against it. The company also requested temporary restraining orders to prevent enforcement while the legal proceedings continue. By taking this route, Robinhood is effectively betting that federal law preempts state-level intervention in the sports event contracts market.

ALT5 Sigma Denies SEC Probe Rumors

In other legal news, ALT5 Sigma, a newly minted investment partner of Donald Trump’s World Liberty Financial, denied reports that one of its affiliates is under investigation by the US Securities and Exchange Commission (SEC). The speculation centered on venture capitalist Jon Isaac, who was alleged to be facing scrutiny over earnings inflation and insider share sales tied to ALT5’s recent $1.5 billion treasury deal with Trump’s crypto platform.

The rumors gained traction on Tuesday after a report from The Information, but ALT5 Sigma quickly pushed back on X by stating that Isaac was neither a current nor former president nor an adviser to the company. The firm also said it was not aware of any SEC probe into its activities. Isaac himself shared the denial on social media, and said the reports contained “significant factual errors” about both his role and regulatory status.

Despite the rebuttals, the initial report rattled investors. ALT5’s stock plunged by 10.5% to $10.48 during Tuesday’s session. The decline worsened in after-hours trading, with shares sinking to $5.39 — below the level reached before the company’s Aug. 12 announcement of its $1.5 billion common stock offering to support WLF’s corporate treasury.

Isaac confirmed that while he is not an executive at ALT5, he is still deeply tied to the firm. He previously took over ALT5’s predecessor, JanOne, before it rebranded in 2024. Now serving as CEO of investment company Live Ventures, Isaac holds more than one million shares of ALT5, valued at over $5.4 million, and says he has been steadily purchasing more stock. He described himself as a strong supporter of ALT5’s future prospects.

Corporate records add even more complexity to the denials. While ALT5 lists Tony Isaac — Jon’s father — as president and chairman, regulatory filings paint a different picture. A December SEC document revealed that Jon Isaac entered a two-year consulting agreement with ALT5 in March of 2024, under which he was tasked with advising on growth strategies, financial restructuring, client acquisition, and new product development. He was also expected to hold weekly calls with management and, as part of the deal, converted a $540,000 promissory note into more than 465,000 ALT5 shares late last year.