A new class-action lawsuit accusing U.S. prediction platform Kalshi of illegal sports betting underscores the intensifying national debate over whether such markets are federally regulated financial products or fall under state gambling laws.
Seven users recently filed a proposed class-action lawsuit in a New York court, alleging Kalshi operates without the necessary state licenses and deceptively markets its services. The plaintiffs contend that Kalshi acts as a market maker, setting odds and creating an unfair advantage for itself.
This practice, they argue, transforms operations into one-sided bets rather than legitimate financial market transactions. The lawsuit claims Kalshi has violated gambling laws and unjustly enriched itself at the expense of its users.
Kalshi, headquartered in the U.S., maintains that its business is a federally supervised derivatives market under the Commodity Futures Trading Commission (CFTC). This framework, the company asserts, means its event contracts are a type of financial swap, thus exempting it from state gambling regulations.
Co-founder Luana Lopes Lara has publicly refuted the accusations, stating they demonstrate a fundamental misunderstanding of how Kalshi’s regulated markets and market makers operate. She emphasized that using market makers to provide liquidity and foster competition is a common and regulated practice in prediction markets.
This lawsuit adds to existing legal pressures on Kalshi. The company already faces challenges from state gaming authorities and tribal casino organizations, who also allege that Kalshi is conducting unauthorized sports betting.
A recent adverse ruling in Nevada determined that state regulators do have the authority to supervise Kalshi’s operations. A federal judge in that case ruled that contracts based on sports outcomes do not classify as financial swaps and therefore are not exclusively under CFTC jurisdiction.
The judge stated that Kalshi relies on a “forced interpretation” of the complex Commodity Exchange Act to bypass state regulation. Kalshi has since requested an emergency order to prevent that ruling from taking immediate effect.
The design of Kalshi’s yes/no contracts, which allow traders to risk significant amounts for a potential USD 1 payout or total loss, is central to the ongoing debate over whether these activities constitute investment or gambling.
At least five courts across the U.S. are currently evaluating similar disputes regarding the legal classification of prediction markets and their alignment with state gambling laws. The outcomes of these cases could significantly impact the future of the entire sector in the country.