In a significant legal move, prediction market platform Kalshi has filed a lawsuit against the Nevada Gaming Control Board and the New Jersey Division of Gaming Enforcement. This legal action comes in response to cease and desist orders issued by both regulators that demand Kalshi pause all sports-related contracts in their respective states.
Kalshi’s legal representations argue that these contracts should fall under the jurisdiction of the Commodities Futures Trading Commission (CFTC) rather than being subject to state-level regulation. They clarify that the event contracts operate as two-sided markets trading as swaps, differentiating them from the conventional sports betting model where the house retains control over the market.
Kalshi co-founder Tarek Mansour stated: “Prediction markets are a critical innovation of the 21st century, and like all innovations, they are initially misunderstood. We are proud to be the company that has pioneered this technology and stand ready to defend it once again in a court of law.”
Further complicating matters, the Nevada Gaming Control Board also issued a cease and desist for Kalshi’s election contracts, which a United States judge ruled were legal as of September 2024, allowing those contracts to trade freely in the US.
Kalshi lawsuit against Nevada Gaming Control Board. Source: Kalshi
In related news, the CFTC recently initiated a shift in its regulatory strategy. On February 4, Caroline Pham, the acting director, issued a notice indicating a pivot toward ending regulation via enforcement actions, opting instead to concentrate on fraud prevention. This transition has garnered positive reactions from industry players who had previously faced a wave of regulatory challenges.
As Pham noted, “The CFTC is strengthening its enforcement program to focus on victims of fraud, as well as remaining vigilant for other violations of law.” This fresh approach comes at a critical juncture, especially after the CFTC launched a probe into Super Bowl event contracts offered by both Kalshi and Crypto.Com shortly after the announcement was made.
The aim of the CFTC’s probe was to ensure compliance with existing derivatives laws regarding the Super Bowl contracts. Ultimately, no action was taken against the agreements, marking a significant moment for Kalshi amidst regulatory scrutiny.
