Kalshi filed a lawsuit arguing that the CFTC holds jurisdiction over the contracts and that the stop orders misunderstood the nature of Kalshi’s event contracts.
The Nevada Gaming Control Board and the New Jersey Division of Gaming Enforcement have issued stop orders to Kalshi, a prediction market platform, requiring the company to terminate all sports-related contracts within their respective states. Kalshi has responded by filing a lawsuit against the regulators.
Kalshi Sues Gaming Regulators
The contracts, according to Kalshi’s legal team, are subject to the jurisdiction of the Commodity Futures Trading Commission (CFTC) and, as a result, cannot be regulated by state-level authorities.
The team also argues that the stop orders fail to acknowledge that Kalshi’s event contracts are two-sided markets that trade as swaps, as opposed to the sports-betting book model, in which the house dominates the market.
Tarek Mansour, the co-founder of Kalshi, stated that the Nevada Gaming Control Board issued a cease and desist order for Kalshi’s election contracts.
However, a United States judge ruled that the contracts were lawful in September 2024, thereby enabling them to trade freely in the United States.
Acting CFTC director Caroline Pham issued a notice on February 4, signifying a significant regulatory pivot at the CFTC and the cessation of regulation through enforcement actions in favor of a focus on fraud.”
The CFTC is enhancing its enforcement program to concentrate on fraud victims and to remain vigilant for other legal violations,” stated Pham.
Industry firms embraced this significant change at the CFTC as a respite from the deluge of regulatory litigation and enforcement actions that had occurred during the Biden administration.
On the same day that the notice was issued, the regulator also began an investigation into the Super Bowl event contracts offered by Kalshi and Crypto.com.
The CFTC’s investigation was designed to verify that the Super Bowl event contracts were in accordance with the current derivatives laws in the United States. Ultimately, the CFTC did not prohibit the contracts.
