Kalshi dragged to court as Polymarket draws scrutiny over Iran conflict contracts

Traders have filed a class action lawsuit against Kalshi after the prediction market failed to disburse $54 million in one of its contracts targeting the Iranian regime change. The prediction market argues that traders cannot directly benefit from death.

Kalshi, a US-regulated prediction market platform, has found itself in the limelight after traders filed a class-action lawsuit against the company for failing to pay out $54 million in bets on the Iranian leader’s death.

The plaintiffs claim the prediction market invoked a contractual “death carveout” clause to dodge fulfilling the payouts after the Iranian Supreme Leader Ayatollah Ali Khamenei was killed by a joint US-Israeli strike on Saturday.

Traders file a $54M lawsuit against Kalshi after Ali Khamenei’s death

The traders filed the lawsuit on Thursday in the US District Court for the Central District of California, focusing on a Kalshi prediction contract that asked whether Khamenei would leave office before March 1, 2026. The accusers argue that the Supreme Leader is no longer in office and that the outcome was neither ambiguous nor non-binary. 

On the contrary, the prediction market said that Khamenei’s death rendered the contract null and void.

But plaintiffs pushed back on Kalshi’s claims, arguing that escalating US-Iran tensions, including American naval presence already stationed near Iranian waters, paved the way for an imminent war.

Khamenei’s death was not merely foreseeable but the only possible outcome to the contract, resolving “yes” for many traders. The plaintiff termed Kalshi’s invocation of the clause after Khamenei’s death as “predatory” and “deceptive”.

Kalshi’s CEO, Tarek Mansour, addressed the matter in an X post dated March 6. The executive claimed the prediction market did not “deviate from its market rules” and emphasized that the rules were clear that death did not resolve the market to “Yes”.

He added that Kalshi’s rules prevent traders from directly benefiting from death, saying it’s a good thing, and that the platform is US-based. He further explained that Kalshi reimbursed all losses to traders out of pocket and did not make any money from the contract. “Not a single user walked away losing money from this market.”

However, some traders claim otherwise. One user replied to Mansour’s X post with a screenshot showing he had only been paid $8.54, despite his original stake of $49.90. He called Mansour a liar and a fraud before urging the CEO to pay traders.

Another user shared a screenshot showing they received $50.08 from the contract despite spending $199.96 for a max payout of $2,504.

Prediction markets attract regulatory scrutiny on contracts involving war

Prediction markets have attracted regulators’ attention and are now under intense scrutiny. On March 5, Cryptopolitan reported that Polymarket had quietly removed a contract last week that allowed traders to place bets on nuclear weapon detonation this year, with resolution dates of March 31, June 30, and before 2027. 

The publication noted that a coached version of the page revealed that the contract had received more than $650,000 in trading volume. The company briefly archived the contract, and the page now returns a “404 Page Not Found” message with “Oops…we didn’t forecast this” written.

The company also deleted an X post on the contract, which showed a 22% probability of a nuclear detonation occurring this year. 

The prediction contract raised concerns because government officials who make military decisions can bet on it, potentially influencing the outcome.

Six anonymous accounts placed accurate bets on Polymarket that the US would attack Iran, cashing out $1.2 million. The traders placed the bets just hours before Tehran began to receive bombs from the US-Israeli forces.

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