Kalshi's legal woes deepen as CFTC roundtable hangs in balance
Lower Manhattan-based event contract trading platform Kalshi has been in the news all over. On one side, multiple US states have already issued cease-and-desist letters to Kalshi; however, the company’s CEO has said that only the Commodity Futures Trading Commission (CFTC) can regulate it.
“We are literally like a financial exchange, but the underlying trading is events. The CFTC is our regulator. If the CFTC tells us to stop, we will absolutely stop. If they don’t, then we won’t,” Kalshi’s co-founder and CEO Tarek Mansour said in a recent interview.
All of this comes amid a CFTC roundtable on prediction markets scheduled for 30 April 205, which now stands cancelled. What’s more interesting is that the CFTC has neither confirmed nor denied this meeting or its cancellation. However, according to multiple media reports, a meeting was indeed scheduled. According to Dustin Gouker’s The Closing Line, the meeting has been cancelled (not postponed) for the time being.
For starters, what does Kalshi do?
Prediction markets like Kalshi allow participants to buy and sell contracts based on the outcomes of real-world events, functioning similarly to derivatives in financial markets but tied to occurrences ranging from political results to economic indicators and, controversially, sporting events.
Sporting events—that’s the key term here! Kalshi’s expansion into contracts based on athletic contests – such as predicting game winners or player statistics – has ignited a fierce debate.
Also read: From field to court: CFTC’s sports bets under fire – SigmaPlay
Critics, including state gaming regulators, established gambling industry players, and tribal nations, argue these products are effectively sports betting masquerading as financial instruments, thereby circumventing state laws and established regulatory frameworks for gambling.
This fundamental disagreement over whether these contracts constitute financial derivatives under the CFTC’s exclusive jurisdiction or gambling subject to state oversight lies at the heart of Kalshi’s current predicament.
Kalshi faces multi-state legal offensive
The pressure on Kalshi has escalated significantly in recent months, with several states taking direct action against its sports event contracts, arguing they constitute illegal, unlicensed sports wagering.
- New Jersey: The Atlantic City casino industry recently filed a legal brief targeting both Kalshi and the CFTC. The brief contends that Kalshi’s operations violate the federal Wire Act, which prohibits using wire communication for transmitting bets on sporting events where such betting is illegal under state law. Furthermore, the casino industry argues that Kalshi incorrectly interprets the Commodity Exchange Act (CEA), asserting the act was never intended to supersede federal gaming laws like the Wire Act or the Indian Gaming Regulatory Act (IGRA). The brief specifically highlights CFTC Rule 40.11(a), which bars event contracts involving gaming, accusing Kalshi of disregarding this regulation within the CFTC’s own framework. Following a cease-and-desist order from the New Jersey Division of Gaming Enforcement (DGE), Kalshi responded by filing its own lawsuit against the agency, doubling down on its claim of federal pre-emption.
- Nevada: The state of Nevada, a long-established hub for regulated gaming, has also moved against Kalshi. The Nevada Attorney General’s Office filed a motion to dismiss a complaint brought by Kalshi challenging the state’s gaming regulations. Nevada argues that Kalshi’s sports contracts involve the interstate transmission of wagers, thus violating the Wire Act. The state also invoked the history of the Professional and Amateur Sports Protection Act (PASPA) of 1992, suggesting that if the CEA had intended to pre-empt state gaming laws as Kalshi claims, PASPA’s federal prohibition on sports betting (later overturned by the Supreme Court on different grounds) would have been unnecessary. Nevada further criticised Kalshi for allegedly failing to disclose the existence of CFTC Rule 40.11(a) in its legal arguments within the state. Similar to its actions in New Jersey, Kalshi initiated legal proceedings against the Nevada Gaming Control Board (NGCB) after receiving a cease-and-desist order.
- Maryland: Maryland became another key battleground when the Maryland Lottery and Gaming Control Commission (MLGCC) issued cease-and-desist letters to Kalshi and other platforms in early April 2025, deeming their sports contract offerings to be unlicensed sports wagering under state law. Kalshi again responded with legal action, filing a motion for a preliminary injunction against the state. A crucial hearing on this motion is scheduled for 29 May 2025, marking a significant date in this particular state-level conflict.
The challenges are not confined to these states. Reports indicate that cease-and-desist letters or investigations concerning sports prediction markets have emerged in numerous other jurisdictions, including New York, Ohio, Montana, Illinois, Tennessee, Michigan, Connecticut, Kansas, and Arizona, painting a picture of rapidly spreading regulatory resistance.
Across these disputes, Kalshi maintains a consistent defense strategy. The company argues that as an entity regulated at the federal level by the CFTC, it operates under exclusive federal jurisdiction, rendering state gaming laws inapplicable to its event contracts. Kalshi also attempts to differentiate its products from traditional sports betting by characterising them as peer-to-peer swaps on an exchange, distinct from the typical model where a bettor wagers against the “house”.
CFTC halts step towards clarity
Amidst these state-level skirmishes, the CFTC had appeared poised to potentially bring much-needed clarity to the federal regulatory landscape for prediction markets. Even as the agency did not announce a specific date for the roundtable, it was widely expected that a meeting would be held towards April end to bring in more clarity to the situation.
Industry observers say that CFTC is waiting to see how the battle plays out in the court before deciding.
“I wouldn’t blame Acting Chair Pham for waiting to see how the court fights turn out. Postponed roundtable notwithstanding, CFTC regulation of prediction markets seems to be inching closer to reality; the only question is, how broadly will the CFTC regulate, and will it entangle itself in the fight over sports contracts? If so, when?”, said Andrew Kim, Partner at Goodwin, on a LinkedIn post.
That is just one theory—to see how the legal battle plays out.
CFTC could be waiting for the new chairman. Caroline Pham is the commission’s acting chairman. Brian Quintez, the incoming chairman, hasn’t assumed his role yet. Interestingly, Quintez has also been a board member at Kalshi since November 2021, according to information available on his LinkedIn profile.
