Kalshi Hit With Lawsuit Alleging Illegal Sports Gambling Operation

Prediction market platform Kalshi is now under heavy legal fire after a nationwide class action lawsuit. That accused it of running an illegal sports gambling operation. The complaint was filed in the U.S. District Court for the Southern District of New York. With names seven plaintiffs from across the country. At the heart of the case is a sharp allegation

Plaintiffs claim Kalshi misled users into believing they were legally betting against other traders. While in reality, they were betting against the platform itself. In simple terms, the lawsuit argues that Kalshi operated like a sportsbook. While presenting itself as something very different. The lawsuit seeks treble damages, restitution, disgorgement and injunctive relief. Along with full legal fees.

Ads, Sports Trades, and a Hidden “House”

Legal experts also pointed to Kalshi’s advertising strategy as part of the problem. According to gaming lawyer Daniel Wallach, Kalshi allegedly ran ads that looked like breaking news. They claim that sports betting through their platform is legal in all 50 states. The lawsuit argues those claims were false. Plaintiffs further allege that sports wagers made up nearly 90% of Kalshi’s volume in September. With total activity estimated at nearly $2 billion in a single month.

The complaint claims that in many cases, users were not matched against each other but instead against market makers tied to the platform. That structure, the lawsuit argues, creates a hidden house edge. This transforms the platform from a neutral prediction market into a traditional betting operation under another name.

States and Tribes Also Move Against Kalshi

The class-action case is only one front in Kalshi’s legal battle. Several U.S. states have already moved to challenge the platform. Massachusetts, New York, Nevada, Maryland, New Jersey and Ohio have all taken regulatory or legal action. In Nevada, a federal judge recently ruled that state gaming regulators can enforce laws against Kalshi. It rejects the argument that its sports contracts qualify as federally protected swaps

Massachusetts also claims Kalshi’s sports volume now outpaces licensed sportsbooks. Which places it squarely under state gambling rules. Tribal gaming groups have also entered the fight. The Ho-Chunk Nation of Wisconsin and other tribal organizations argue that Kalshi undercuts legally protected tribal gaming rights.

Kalshi’s Defense Could Shape U.S. Prediction Markets

Kalshi maintains that it is fully regulated by the CFTC as a designated contract market. The company insists its event contracts are financial derivatives, not gambling products and therefore fall under federal, not state, oversight. That legal distinction now sits at the center of a growing national debate. If courts rule against Kalshi, it could reshape how prediction markets operate across the U.S

If Kalshi wins, it may strengthen federal authority over event-based trading. Currently, discovery begins and regulators tighten scrutiny. Therefore, the line between derivatives and sports betting faces its biggest legal test yet. One thing is clear: this case could set the rules for the entire prediction market industry moving forward.