Kalshi accused of providing ‘illegal sports betting’ in nationwide class action
Prediction platform Kalshi is facing a nationwide class-action lawsuit accusing it of operating what plaintiffs deem an unlawful sports betting service.
A complaint has been lodged in a federal court in New York on behalf of thousands of potential class members, including seven named plaintiffs.
It argues that they were misled into placing bets under the false belief that they were engaging in legitimate, legal trading contracts. The accusers now seek restitution for their losses, as well as damages and a jury trial.
The complaint read that “by operating unlicensed sports betting, Kalshi has violated gambling laws, engaged in illegal deceptive activity, and unjustly enriched itself at the expense of tens of thousands of consumers.”
The plaintiffs argue that Kalshi failed to obtain proper licensing, violated state gambling laws, engaged in deceptive business practices, and unjustly profited at the expense of its users.
They now hope to take this class action suit nationwide. If successful, it could have significant ramifications, including refunds and stricter regulations around prediction markets.
The news comes after states started to fight back against the surge in popularity that prediction markets have seen. Previously, the Massachusetts Attorney General filed a lawsuit in state court, arguing that Kalshi’s offerings are unlicensed sports wagering.
Additionally, a federal judge in Nevada recently ruled against Kalshi, stating that the prediction market was subject to state gambling laws, and cleared the way for Nevada’s gaming regulators to pursue enforcement.
Abi Bray brings strong researching skills to the forefront of all of her writing, whether it’s the newest slots, industry trends or the ever changing legislation across the U.S, Asia and Australia, she maintains a keen eye for detail and a passion for reporting.
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The Backstory
Why a class-action landed now
The nationwide class-action accusing Kalshi of running illegal sports betting arrives after months of intensifying legal skirmishes over whether “event contracts” belong under federal derivatives rules or state gambling laws. While Kalshi frames its yes/no sports markets as federally regulated commodities, a patchwork of state enforcement moves, venue fights and marketing scrutiny has narrowed the company’s room to operate and sharpened the stakes for investors, rivals and regulators.
That tension has been building in federal and state courts. In California, a judge denied tribes’ bid to block Kalshi’s sports events contracts, holding that the company’s products fall under the Commodity Exchange Act with the Commodity Futures Trading Commission as primary regulator. The ruling signaled that, at least under federal law in that jurisdiction, Kalshi’s contracts were not gambling. Yet the outcome did not settle the state-law question. Regulators and attorneys general in other states continued to argue that Kalshi must comply with local sports wagering statutes if it offers sports outcomes to their residents.
That jurisdictional divide set the stage for plaintiffs’ attorneys to argue in the class case that, whatever Kalshi’s federal posture, consumers were misled and harmed under state gambling and consumer protection laws. The complaint follows a string of state actions that treated Kalshi’s sports offerings as unlicensed betting, creating a factual and legal record the plaintiffs now aim to nationalize.
Court wins and losses shape the playbook
Kalshi has tested the bounds of federal preemption and jurisdiction with mixed results. The company scored a notable early help when the California ruling found that the CFTC’s exclusive remit covered event contracts under federal law, undercutting claims that the platform’s core model is per se illegal gambling. That decision also rejected a false advertising claim tied to whether sports betting is legal nationwide, treating the disputed phrasing as opinion rather than a literal assertion.
But in Massachusetts, a crucial venue for consumer protection enforcement, a federal judge sent the state’s lawsuit back to state court, rejecting Kalshi’s bid to keep the case in federal court on “complete preemption” grounds. The ruling did not decide whether the Commodity Exchange Act ultimately preempts parts of state law, but it ensured Massachusetts could press its claims under state gambling and business statutes in its own courts. That procedural loss matters: if state courts become the primary arenas, Kalshi faces different standards, timelines and remedies, including potential injunctions and restitution that mirror the class-action demands.
Kalshi has also been willing to sue first when states move against it. In Ohio, the company filed an Oct. 7 complaint, arguing the state is overreaching and chilling partnerships; Kalshi’s lawsuit against Ohio regulators seeks to block enforcement ahead of a planned injunction hearing. The Ohio Casino Control Commission has warned licensed sportsbooks that working with Kalshi could endanger their licenses, a threat that directly targets the firm’s go-to-market plans. In Maryland, Kalshi sued after a cease-and-desist, claiming federal law bars the state from regulating swaps on a designated exchange; the Maryland case asks for preliminary and permanent injunctions and argues the state is intruding on a federally occupied field.
States test the limits of preemption
State officials are betting that their traditional police powers over gambling still apply when residents wager on sports outcomes, even if the product is packaged as a derivative. The strategy has been coordinated. The Ohio dispute followed a June legal brief from Attorney General Dave Yost and dozens of counterparts backing state authority to regulate online betting platforms. Massachusetts moved first with a complaint that framed Kalshi’s sports markets as wagers outside any state-issued license. Other regulators have echoed that stance with cease-and-desist orders and warnings to partners.
Kalshi’s counter is straightforward: sports event contracts are peer-to-peer swaps, not bets, and the CEA provides the governing federal framework. The company has pointed to instances where federal courts have recognized the CFTC’s jurisdiction. In Maryland, it underscored that Congress designed a national regime for futures and options, and states lack authority to carve out exceptions for contracts traded on a designated exchange. The company has also cited interim wins elsewhere; its Maryland filing notes a temporary injunction in Nevada that Kalshi said would further clarify the model’s legality.
The class-action’s theory attempts to harmonize these threads by focusing on consumer impact and alleged deception, rather than only on preemption. If plaintiffs can show that users reasonably believed they were participating in legal trading under state law when they were in fact placing unlicensed sports bets, they could win restitution without resolving the larger federal-versus-state question. That approach raises the financial stakes while regulators pursue parallel injunctions.
Marketing choices draw league scrutiny
Beyond the courtroom, brand and compliance risks have widened. Advertising that leans on league images or suggests sportsbook-like experiences invites intellectual property and policy pushback. The NFL has told players and staff that prediction markets mimic sportsbooks and are prohibited. After social media criticism of job listings that referenced “sportsbooks,” Kalshi pared back the language.
Separately, Kalshi and Polymarket were accused of using NFL and NFLPA branding without approval in promotions tied to team logos and player photos. The NFL has said it can work with operators that meet the compliance standards it requires of sportsbooks, including information sharing and integrity protections. Kalshi has argued in court that meeting sportsbook-like demands is too costly for an exchange model. That gap underscores a business risk: the closer prediction markets market themselves to sports bettors, the more they invite both league enforcement and state gaming oversight.
What the next phases could decide
The overlapping lawsuits will determine more than venue. If Massachusetts or another state secures an injunction on state-law grounds, Kalshi’s ability to scale nationally with sports markets could collapse into a state-by-state patchwork. A victory for Kalshi in Ohio or Maryland could reinforce the CEA’s primacy and embolden exchange-style offerings to expand, especially if courts articulate a clearer boundary between swaps and wagering.
The class-action adds an immediate financial overhang. Plaintiffs are seeking restitution and damages on behalf of thousands of users. Even if Kalshi prevails on preemption in some courts, a settlement or adverse verdict on deceptive practices could force refunds, alter marketing and impose compliance commitments that resemble sportsbook norms. That outcome would ripple across the sector, affecting rivals and partners considering sports-themed event contracts.
Ultimately, the cases are converging on a central question: who regulates the frontier where finance-style contracts intersect with sports fandom? Until courts or Congress draw a brighter line, prediction markets will face parallel tests of legality, disclosure and branding. The result will define whether the category matures into a federally supervised niche or is corralled by state gambling regimes that look and feel like the sportsbook playbook.
