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Seven customers filed a class action lawsuit against Kalshi in New York federal court Wednesday, accusing the CFTC-regulated prediction market of operating an unlicensed sports betting platform that illegally acts as ‘the House’ against users.
The explosive Kalshi prediction market lawsuit claims the platform deceived users, acted as “the House,” and violated gambling laws — thrusting Kalshi into its most dramatic legal showdown yet.
The Kalshi prediction market lawsuit claims the company illegally markets itself as a form of “legal sports betting” without holding a gambling license in any U.S. state.
Shocking Allegations Emerge in Kalshi Prediction Market Lawsuit
Filed Wednesday in a New York federal court, the Kalshi prediction market lawsuit accuses both Kalshi Inc. and Kalshi Trading of acting as a de-facto “House,” similar to a traditional sportsbook.
Plaintiffs claim Kalshi Trading operates as a sophisticated market maker that creates odds directly against everyday users.
“When consumers place bets on Kalshi, they face off against money provided by a sophisticated market maker,” the lawsuit reads. “Market makers make it possible for consumers to place illegal, unregulated wagers against the House.”
The class action—filed by the well-known legal firm Lieff Cabraser Heimann & Bernstein—adds to mounting pressure from state regulators and Native American tribal authorities who previously sued Kalshi over alleged illegal betting operations.
Kalshi co-founder Luana Lopes Lara strongly rejected the accusations behind the Kalshi prediction market lawsuit, calling them “false and based on a fundamental misunderstanding” of how prediction markets function.
She emphasized that Kalshi works with regulated trading desks—standard practice in derivatives markets—and insisted that “no preferential treatment” is given to any liquidity provider.
Kalshi maintains that it operates under federal oversight from the Commodity Futures Trading Commission (CFTC), not under state gambling laws.
The Kalshi prediction market lawsuit arrives at a difficult moment for the company. Just recently, Kalshi suffered a major setback when a Nevada federal judge ruled that state regulators—not the CFTC—could oversee its operations.
“Event contracts that turn on the outcomes of sporting events are not swaps and thus do not fall within the CFTC’s exclusive jurisdiction,” wrote U.S. District Judge Andrew Gordon in the ruling. He added that Kalshi relies on “a strained reading” of the Commodity Exchange Act to avoid state oversight.
Kalshi immediately requested an emergency order to halt the Nevada decision while appeals continue.
Meanwhile, the Kalshi prediction market lawsuit notes that plaintiffs were unaware they were allegedly betting on an unlicensed sportsbook.
The filing claims Kalshi “violated gambling laws, engaged in illegal deceptive activity, and unjustly enriched itself at the expense of tens of thousands of consumers.”
At least five federal courts across the country are currently weighing similar disputes involving prediction markets and state gambling laws.
Critics argue that platforms like Kalshi blur the line between legal derivatives and illegal wagering, especially when markets revolve around sports outcomes.
Under CFTC rules, event contracts function like swaps—yes-or-no contracts where winners receive $1 per share and losers earn nothing.
But regulators warn that traders can risk thousands, blurring distinctions between financial speculation and gambling.
The Kalshi prediction market lawsuit is now seen as a pivotal test case that could redefine how prediction markets are regulated in America.
As one industry analyst noted, “This lawsuit will determine whether prediction platforms can innovate freely or must operate under the same strict rules as sportsbooks. The stakes could not be higher.”
