Prediction market platform, Kalshi, is embroiled in a legal battle with the Nevada Gaming Control Board and the New Jersey Division of Gaming Enforcement. The dispute arose after the state regulators issued cease and desist orders, instructing the company to temporarily halt all sports-related contracts in those states.
The legal representatives of Kalshi have countered these orders by asserting that these contracts are under the purview of the Commodities Futures Trading Commission (CFTC) and therefore, are beyond the regulatory reach of the state authorities. They further argue that the regulators’ orders do not acknowledge the fact that Kalshi’s event contracts operate as two-sided markets, which trade as swaps, differentiating them from the traditional sports-betting book model where the house governs the market.
Tarek Mansour, Kalshi co-founder, expressed his stance saying, “Prediction markets are a vital innovation of this century, and like all novelties, they are initially misunderstood. As a company that has spearheaded this technology, we are prepared to defend it yet again in the court of law.”
In addition to the sports-related contracts, the Nevada Gaming Control Board issued a cease and desist order against Kalshi’s election contracts. However, a U.S. judge in September 2024 determined these contracts legal, permitting them to be freely traded within the U.S.
On February 4, acting CFTC director, Caroline Pham, announced a major shift in the CFTC’s approach, intending to end regulation through enforcement actions, and instead, concentrate on combating fraud. Pham stated, “The CFTC is fortifying its enforcement program to focus on victims of fraud, while also remaining alert for other law violations.” This shift was warmly received by industry firms, who viewed it as a respite from the slew of regulatory lawsuits and enforcement actions under the Biden administration.
The CFTC also launched an investigation into the Super Bowl event contracts offered by Kalshi and Crypto.Com on the same day the notice was issued. The aim of the probe was to ensure these contracts conformed to current U.S. derivatives laws, with the CFTC ultimately deciding not to prohibit the contracts.
