Prediction market platform Kalshi is defending itself against increasing legal scrutiny. The company filed a lawsuit against Rhode Island authorities and also sent a cease-and-desist letter to FairPredicts, a group that has been running an ad campaign with the tagline “Kalshi Lies.”
Kalshi has attempted to preempt enforcement actions from state regulators by suing authorities in federal courts. The company believes it has a better chance of success there than in state courts, which may be more sympathetic to state regulators’ arguments.
The lawsuit against Rhode Island states that it “believes Rhode Island will imminently bring an enforcement action against Kalshi with the intent to prevent Kalshi from offering event contracts for trading on its federally regulated exchange.”
Rhode Island Sues Kalshi and Polymarket
Whether it was pre-planned or a response to the lawsuit, Rhode Island’s Attorney General announced that it was suing Kalshi and Polymarket later that day.
“There is no substantive difference between sports betting and ‘events contracts’ in this context; Kalshi and Polymarket know that, and we know that,” said Attorney General Peter Neronha in a press release.
“The problem here is that Rhode Island State law heavily regulates gambling, for good reason, and we allege that Kalshi and Polymarket are evading our laws.”
Currently, Rhode Island residents can wager on esports at Kalshi and Polymarket, but not at a legally regulated sportsbook. Rhode Island only offers one option for sports betting, Rhode Island Sportsbook, although it recently announced that Bally’s will also be granted a license to launch its online platform.
That could see legal esports betting made official as Bally’s offers odds on major events in other states.
Kalshi Encouraging Addictive Behaviors, Claims AG
The complaint filed by Neronha alleges that “Kalshi and Polymarket not only function as betting platforms, but also adopt the design and terminology of traditional gambling operations.”
“For example, Kalshi prompts users to gamble with leaderboards and constant updates on how other users are placing bets. Such design choices have long been known to encourage addictive gambling behavior.”
Kalshi signed up as a member of the National Council on Problem Gambling (NCPG) earlier this week. That would appear to be an admission that the company is operating a gambling platform, as state regulators allege. However, the NCPG created a special category for the company, officially classifying it as its first and only Financial Services & Trading member.
In a press release, Kalshi CEO Tarek Mansour stated, “As prediction markets continue to evolve, we are deeply committed to setting a new standard for responsible trading by investing in the tools, education, and protections needed to promote healthy participation and customer safety and hope that over time all trading platforms with significant retail participation follow suit.”
Kalshi Lies Campaign Prompts C&D Order
In addition to the legal actions in Rhode Island, Kalshi lawyers were also busy on Thursday issuing a cease-and-desist order against FairPredicts.
The group, which has not revealed its funding source, has been running an ad campaign with the tagline “Kalshi Lies.”
It alleges that Kalshi is misleading users and is actually acting more like a sportsbook with the majority of trades conducted through its in-house trading arm, Kalshi Trading, and other institutional market makers.
In Kalshi’s cease-and-desist letter against the group, it claims they are the ones spreading lies. The letter states that FairPredicts is involved in the “publication, dissemination, and paid promotion of false, misleading, defamatory, and commercially disparaging statements”.
Kalshi Not The House, Claims Company
The company reasserts that it is not the house; Kalshi Trading is only one of many market makers that provide liquidity on the exchange. It also says that the trading arm is overall in a net negative.
Kalshi spokesperson Elisabeth Diana said she suspects casino interests are funding the campaign.
“Smells like a casino-led effort,” Diana stated. “Prediction markets are fair, transparent, and open. Casinos limit winners (unfair), price with algorithms (opaque), and set the odds themselves (closed). FairPredicts or UnfairPredicts?”
Kalshi warns that if FairPredicts does not immediately stop its campaign, it will pursue further legal action against the group. Its legal fight with Rhode Island means it is now involved in court cases in over 20 states.
Circuit Split Could Lead To Supreme Court Hearing
In New Jersey, state regulators have said they will take the case to the Supreme Court after the Third Circuit ruled in favor of Kalshi.
In the Ninth Circuit, meanwhile, on Thursday, a judge denied Kalshi’s and Polymarket’s motions for a stay pending appeal. This sends civil enforcement actions back to state courts in Nevada and Washington. Nevada is the only state to have successfully restricted Kalshi thus far. It also restricts Polymarket, as well as Crypto.com.
With a circuit split in the rulings, that could accelerate a Supreme Court hearing. A Supreme Court ruling could eventually clarify whether prediction markets, particularly those on sports, fall under federal or state law.