Kalshi files lawsuit against Nevada and New Jersey regulators

Prediction market Kalshi has filed a lawsuit against the Nevada Gaming Control Board and the New Jersey Division of Gaming Enforcement after both regulators issued cease-and-desist orders against the firm’s sports-related contracts.  

According to Kalshi’s legal team, the contracts fall under the jurisdiction of the Commodity Futures Trading Commission (CFTC) and should not be subject to state-level regulation.  

Kalshi argued that its event contracts function as two-sided markets trading as swaps, unlike traditional sports betting models where the house controls the odds.  

"Prediction markets are a critical innovation of the 21st century, and like all innovations, they are initially misunderstood," Kalshi co-founder Tarek Mansour said.  

The lawsuit also challenges a separate cease-and-desist order from Nevada, which targeted Kalshi’s election contracts.  

A U.S. judge ruled in September 2024 that these contracts are legal, allowing them to be traded in the country.  

On February 4, acting CFTC director Caroline Pham announced a shift in regulatory approach, stating that the agency would move away from enforcement-based regulation and focus on preventing fraud.  

"The CFTC is strengthening its enforcement program to focus on victims of fraud, as well as remaining vigilant for other violations of law," Pham said.  

The announcement was welcomed by industry participants who had criticized past enforcement actions under the Biden administration.  

That same day, the CFTC launched a probe into Super Bowl event contracts offered by Kalshi and Crypto.com.  

The investigation aimed to assess whether these contracts complied with U.S. derivatives laws, but the CFTC ultimately took no action to prohibit them.