Kalshi faces escalating legal challenges, including a class action lawsuit in New York that accuses the company of misleading numerous consumers into engaging with its “illegal sports betting platform.”
This development follows a recent ruling from Nevada that calls into question the prediction market operator’s assertion that its sports event contracts should be classified under federal commodities regulation, rather than being subject to state gambling laws.
Kalshi functions as a designated contract market (DCM) under the regulation of the Commodity Futures Trading Commission (CFTC). The firm contends that its “trading” practices are compliant with federal commodities law and escape state gambling regulations. Kalshi has self-certified its sports contracts with the CFTC.
Nevertheless, a Nevada court ruling has countered that argument. On November 24, US District Judge Andrew Gordon revoked a previous injunction that had temporarily prevented Nevada regulators from taking action against the company. The judge asserted that Kalshi’s interpretation of commodities law “disrupts decades of federalism regarding gaming regulation” and contradicts congressional intentions as specified in the Commodity Exchange Act.
Nevada regulatory authorities have asserted their intent to pursue enforcement actions against entities they deem to be operating unlawful sports betting.
Class Action Claims Kalshi Functions as a Sportsbook
In conjunction with the Nevada ruling, Kalshi is concurrently subject to a nationwide class action filed in New York’s Southern District, alleging that the company operates as an unlicensed sports gambling establishment.
The complaint posits that consumers engaged in trading are essentially betting against both each other and Kalshi itself, asserting that the company’s market maker subsidiaries, Kalshi Trading LLC and KalshiEX, take opposing stances when trades diverge from Kalshi’s internal estimated odds. The complaint also indicates collaborations with hedge funds like Susquehanna International Group to facilitate institutional market-making.
The plaintiffs allege that market makers stand to gain profits when consumers incur losses. Furthermore, they argue that “customers are unwittingly deceived into betting against Kalshi.” The suit seeks compensation for customer losses and demands a jury trial, potentially with treble damages.
Sports Contracts Account for Significant Platform Activity
Even though Kalshi provides a variety of event-driven markets, the plaintiffs contend that these activities closely resemble conventional betting models. The suit cites examples such as bets on NFL game outcomes and whether specific players will meet performance benchmarks.
The filing claims that 90% of Kalshi’s transaction volume in September was derived from “sports betting,” estimating approximately $2 billion in wagering on sports contracts. The lawsuits aim to establish a nationwide class and additional subclasses in 30 states alongside Washington, D.C., citing breaches of state gambling and consumer protection statutes in states including New York, California, and Florida.
Kalshi has categorically denied all allegations. “This lawsuit highlights multiple fundamental misconceptions regarding the functioning of federally regulated DCMs,” a spokesperson told Front Office Sports. “Anyone familiar with Kalshi’s operations will recognize this as groundless fiction. We are eager to address these matters further in our forthcoming court documents.”