Prediction Market Kalshi Hit With Class Action Alleging Illegal Sports Betting and Rigged Market-Making

• Kalshi was hit with a new class action lawsuit, accusing the betting platform of illegally operating as a sports bookmaker.
• The lawsuit also states that Kalshi misled users by marketing its platform as “legal sports betting” despite lacking state gaming licenses. 
• The suit further claims Kalshi’s affiliate secretly acts as a market maker that tilts betting lines against customers, adding to the firm’s growing legal challenges from regulators and tribal groups.

Prediction market platform Kalshi is facing a proposed class action in New York accusing it of running unlicensed sports betting and misleading customers about how its markets operate. 

The suit, filed by seven users and led by plaintiff firm Lieff Cabraser Heimann & Bernstein, says Kalshi markets “legal sports betting” despite lacking gaming licences in any U.S. state, Bloomberg reported.

According to the filing, users are not simply trading with one another but are betting with money supplied by a “sophisticated market maker,” likening the setup to wagering “against the house” in an unregulated sportsbook.

The lawsuit comes a few days after the platform more than doubled its private valuation, going from US$5 billion (AU$7.6 billion) to US$11 billion (AU$16.8 billion). 

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More Legal Trouble

Kalshi is already battling state gambling regulators and Native American tribal groups that say it is offering illegal sports wagering. The company argues it is a federally regulated derivatives exchange under the Commodity Futures Trading Commission’s (CFTC) oversight and that its “event contracts” are swaps rather than bets.

Co-founder Luana Lopes Lara rejected the new claims in a social media post, calling them false and based on a misunderstanding of how exchanges function.

This account, and others, are being paid by our competitor to amplify a baseless lawsuit. The allegations are false and reveal a fundamental (and maybe intentional) misunderstanding of how these markets work.

Luana Lopes Lara, Co-Founder of Kalshi.

Lara said Kalshi uses market makers, including an affiliated desk, to provide liquidity, describing the practice as common, regulated and not subject to preferential treatment. She’s referring to Kalshi’s affiliate trading desk, Kalshi Trading, which the complaint also targets, alleging it acts as a market maker that effectively sets lines against customers. 

In a recent setback, a federal judge in Nevada ruled Kalshi is subject to state regulation, finding that event contracts tied to sports results are not swaps. Kalshi has asked the court to pause that order while it appeals.

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