Prediction market operator Kalshi has filed a lawsuit against the Nevada Gaming Control Board and the New Jersey Division of Gaming Enforcement, challenging recent cease-and-desist orders that forced the firm to suspend its sports-related contracts in both states.
Kalshi argues that its contracts fall under the regulatory domain of the U.S. Commodity Futures Trading Commission (CFTC), not state-level gaming regulators.
Kalshi Defends Event Contracts as Swap Markets, Not Sports Bets
The company maintains that its event contracts function as two-sided swap markets, unlike traditional sports betting models where the house sets and controls the odds.
“Prediction markets are a critical innovation of the 21st century, and like all innovations, they are initially misunderstood,” said Kalshi co-founder Tarek Mansour.
“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.”
The legal dispute also comes on the heels of additional regulatory pressure from Nevada, where officials issued a cease-and-desist order over Kalshi’s election-based contracts.
However, those contracts were deemed legal by a U.S. judge in September 2024, allowing them to be freely traded across the country.
The timing of Kalshi’s lawsuit follows a significant shift in regulatory tone from the CFTC.
On February 4, acting CFTC Commissioner Caroline Pham announced a move away from regulating by enforcement and emphasized a renewed focus on protecting victims of fraud.
“The CFTC is strengthening its enforcement program to focus on victims of fraud, as well as remaining vigilant for other violations of law,” Pham stated.
This change in approach was welcomed by many in the industry, especially after years of heightened scrutiny during the Biden administration.
On the same day Pham’s notice was issued, the CFTC launched a probe into Super Bowl-related event contracts offered by Kalshi and Crypto.com.
However, the investigation concluded without any enforcement action, signaling a more measured approach from federal regulators.
CFTC Probes Super Bowl Contracts by Crypto.com and Kalshi Over Derivatives Compliance
Earlier this month, the CFTC announced that it is reviewing Super Bowl-related prediction contracts offered by Crypto.com and Kalshi Inc. to determine if they comply with federal derivatives laws/
Crypto.com introduced its sports event trading product last year, enabling users to make predictions on high-profile events like the Super Bowl.
CEO Kris Marszalek previously stated that the platform was fully regulated at launch.
Despite that, the CFTC has expressed concern over whether such contracts qualify as legal derivatives.
In January, the agency’s five commissioners voted to initiate a 90-day review of the Super Bowl futures products, effectively extending the probe past the game’s February 9 kickoff.
The regulator is expected to reach a decision by mid-April on whether to pursue enforcement actions or begin crafting new rules to address such prediction markets.
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