Kalshi faces lawsuit over alleged unlicensed sports betting and market manipulation

A group of users has initiated a lawsuit against Kalshi, accusing the prediction market of running a nationwide unlicensed sports betting platform and misleading customers about its market-making activities.

The complaint, first reported by Bloomberg, claims that Kalshi presents its platform as a regulated derivatives exchange when in reality operating as an unlicensed sportsbook, offering wagers on sports outcomes under the veneer of “event contracts.”

Event contracts function like binary derivatives tied to real-world events and are permitted under federal rules when used for economic hedging or prediction purposes. They differ from gambling because they must not involve sports or other games of chance.

According to the lawsuit, Kalshi crossed that boundary by taking ordinary sports bets, effectively sidestepping state gambling laws. Regulators in multiple states have rejected this characterization, arguing that sports wagers remain illegal regardless of how they’re labeled.

Plaintiffs say Kalshi took bets from residents in states that ban online sports gambling, marketed the platform as “legal in 50 states,” and ignored warnings and enforcement letters from regulators in New York, Arizona, Illinois, Montana, Nevada, New Jersey, Ohio, and Massachusetts.

According to the complaint, sports betting now represents the vast majority of Kalshi’s volume, generating billions in wagers and helping fuel fundraising rounds that have pushed its valuation above $11 billion.

The suit seeks refunds of users’ wagers and penalties for alleged violations of gambling and consumer protection laws.