The well-known prediction market platform Kalshi recently got into big trouble, facing a class action lawsuit in the Southern District of New York Federal Court, accused of operating an unlicensed sports betting platform and misleading consumers. The plaintiffs claim that users are actually gambling against Kalshi and its hedge fund partners, rather than engaging in genuine peer-to-peer transactions, and this lawsuit is no small matter.
Lawsuit Background and Core AllegationsThis class action has seven named plaintiffs and thousands of potential members, seeking to recover losses on the platform, and if successful, they could receive triple damages. The complaint directly points out that Kalshi violates gambling laws and engages in deceptive operations, although the platform claims to be a sports event outcome trading platform, its operation mode is no different from traditional sports betting operators, essentially a case of bait and switch.
Platform Operation Mode ControversyKalshi allows users to "trade" on events such as NFL game outcomes and player performances, such as whether Jared Goff can throw two or more touchdowns. However, the lawsuit points out that consumers often do not know that they are actually gambling through Kalshi's subsidiaries and hedge fund partners like Susquehanna International Group against the platform itself. Whenever betting deviates from internal predictions, Kalshi acts as a market maker, allowing consumers to gamble unknowingly against the house, rather than participating in a fair market.
Legal Stance and Industry DynamicsKalshi firmly denies these allegations, claiming its platform operates under the "designated contract market" rules regulated by the Commodity Futures Trading Commission, and is not subject to state gambling laws. The spokesperson directly called the lawsuit "baseless fiction," stating that those familiar with the platform's operations know these allegations are unfounded. However, Kalshi has indeed been legally troubled recently, as a Nevada federal judge just allowed the state's gambling regulatory authority to take action against its unlicensed operations, although the platform has appealed.
Potential Impact and Regulatory ChallengesThis lawsuit is part of a wave of legal challenges facing U.S. prediction market platforms, with companies like Robinhood and Crypto.com also involved in similar regulatory disputes. Despite ongoing legal battles, the prediction market continues to grow rapidly, with platforms like Polymarket and PrizePicks competing for market share, and even Coinbase is reportedly collaborating with Kalshi to develop its own prediction market platform. Kalshi's "KalshiU" project launched in September targets college campuses and is accused in the lawsuit of targeting underage users and fostering addictive gambling behavior. If this class action is successful, not only could Kalshi face substantial damages, but it could also set a dangerous precedent for other similar platforms.
