Kalshi Faces Fresh Class-Action Suit Alleging Unlicensed Sportsbook Activity
Kalshi has been hit with another class‑action complaint accusing it of operating an unlicensed sportsbook under the guise of a prediction market.
LISTEN TO THIS ARTICLE:The suit, filed last week in the Southern District of New York, targets the San Francisco‑based prediction‑market platform and argues the company’s sports event contracts are effectively illegal gambling products in states that already regulate sports betting. Plaintiffs say Kalshi is presenting its markets as financial instruments regulated by the Commodity Futures Trading Commission (CFTC) to avoid state law, while generating the bulk of its trading volume from sports outcomes.
The complaint asserts that roughly 90% of Kalshi’s reported trading volume now comes from sports event contracts, representing about $2 billion in turnover. It alleges the business model is a contrivance designed to mask an "unlicensed sportsbook" and accuses Kalshi of marketing and operating what the plaintiffs describe as an "illegal gambling product, used deception, and violated gambling laws" to attract customers in states including Nevada, Massachusetts and Missouri.
New Legal Attack Focuses on Market Structure
What distinguishes this filing is its direct challenge to Kalshi’s core legal defense. The platform has repeatedly maintained that its contracts are centrally regulated by the CFTC and therefore fall outside state sports‑betting regimes. Kalshi emphasizes that it does not set odds; instead, customers trade event contracts against one another, and prices are determined by market participants, the company says.
But the plaintiffs counter that framing by arguing users are effectively betting against each other rather than participating in a bona fide financial market. The complaint also calls out so‑called "other traders," claiming these participants are controlled by Kalshi and are deployed to rebalance markets when activity becomes lopsided – a tactic the suit says further demonstrates the company’s operational control and undermines the CFTC defense.
The filing includes explicit language that underlines its theory: it accuses Kalshi of running an "unlicensed sportsbook" and of "masquerading as a financial product" to evade state regulators. So far, the action lists seven named plaintiffs, according to reporting and commentary from legal observers following the case.
Legal commentators say the suit deliberately frames the dispute to force courts to weigh whether the CFTC’s oversight can insulate Kalshi from state consumer‑protection and gambling laws. The outcome could reverberate across the nascent prediction‑market sector and influence how operators design products going forward.
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Regulators and operators have already been maneuvering around the same fault lines. Earlier this year, a Nevada judge ordered Kalshi to stop offering sports event contracts in the state, and both FanDuel and DraftKings recently surrendered their Nevada licenses as they explore prediction‑market initiatives. A separate operator, Underdog, withdrew from Missouri days before it had planned to launch, citing regulatory resistance to prediction markets.
Those moves signal a broader tension: established sportsbook operators and new entrants are weighing the commercial value of prediction markets against the regulatory risk of running sports‑focused products outside state gaming frameworks. Industry lawyers note that even if a federal regulator like the CFTC has jurisdiction over certain contracts, state authorities can still pursue enforcement under state statutes where conduct crosses local lines.
What to watch next: the Southern District of New York complaint will likely prompt discovery into Kalshi’s internal trading practices, market‑making routines and marketing materials. Potential outcomes include dismissal on jurisdictional grounds, narrow factual findings about how the platform operates, or a settlement that could reshape how prediction markets market and structure sports products in regulated jurisdictions.
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