On March 4, the Gaming Control Board (GCB) of Nevada sent Kalshi a letter ordering it to cease and desist from offering event-based contracts in the state. The letter stated that Kalshi’s operation falls under unlicensed sports pool due to its event-based contracts, which is in violation of NRS 463.160(1)(a) and NRS 463.245(2).

Following this, on March 27, the New Jersey Division of Gaming Enforcement (DGE) also issued a similar notice to Kalshi, stating that its activity constituted a violation of the New Jersey Sports Wagering Act.

In response to these notices, Kalshi filed a lawsuit against the gaming regulators. Kalshi argues that as a federally-regulated commodities exchange, it is governed by the Commodity Exchange Act, which trumps the states’ authority to regulate sports- and events-based contracts.

The lawsuit filed in New Jersey echoed the language of the Nevada lawsuit, stating that the state law is both field-preempted and conflict-preempted. Kalshi CEO Tarek Mansour defended the company’s position, stating that the actions taken by Nevada and New Jersey not only undermine Kalshi’s contracts but also the authority vested in the Commodity Futures Trading Commission by Congress.

The heart of the controversy lies in whether trading on event- or sports-based contracts is a form of gambling, regulated by the state, or financial derivatives trading, regulated solely by federal authorities.

Nevada’s GCB argues that Kalshi’s contracts are gambling as the payouts are solely dependant on the outcome of external events. On the other hand, Kalshi’s lawsuits argue that their platform offers consumers the chance to invest in various types of event contracts, including political-outcome contracts and sports-outcome contracts, which are lawful under federal law and subject to CFTC oversight.

Mansour asserted that prediction markets are not gambling but an important financial innovation of the 21st century. He expressed his readiness to defend this technology once again in court.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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