Kalshi Files Lawsuits Against Nevada and New Jersey Gaming Regulators

Prediction market Kalshi filed a lawsuit against the Nevada Gaming Control Board and the New Jersey Division of Gaming Enforcement

output: A recent lawsuit filed by prediction market Kalshi against the Nevada Gaming Control Board and the New Jersey Division of Gaming Enforcement has brought to light a clash of regulatory authority in the emerging field of digital prediction markets. Both state regulators issued cease and desist orders to Kalshi, demanding the company halt all sports-related contracts within their respective jurisdictions.

Kalshi’s legal team countered that these contracts fall squarely under the purview of the Commodity Futures Trading Commission (CFTC) at the federal level and, consequently, are not subject to regulation by state-level authorities.

The lawsuit names the officials at the New Jersey Division of Gaming Enforcement who sent Kalshi the cease and desist order. Credit: Kalshi

The lawsuit, filed on February 8 in the U.S. District Court in Newark, New Jersey, is focused on two issues:

The state regulators are overstepping their authority in trying to shut down Kalshi’s sports event contracts, which are covered by the Commodity Exchange Act and fall under the CFTC’s jurisdiction.

The cease and desist orders from both state regulators fail to recognize that Kalshi’s event contracts are two-sided markets which trade as swaps, as recognized by the Supreme Court case of Richmond, validly sued in 1990, and are not covered by the state gaming statutes. Instead, the orders appear to be focused on a sports-betting book model where the house controls the market, which is not applicable in this case.

Kalshi co-founder Tarek Mansour told Blockworks that the gaming enforcement officials in both states had been threatening for months to shut down Kalshi’s sports contracts, despite Kalshi repeatedly explaining that its contracts are clearly not covered by state law and are exclusively subject to federal regulation by the CFTC.

Additionally, the Nevada Gaming Control Board sent Kalshi a cease and desist order for its election contracts, which a United States judge ruled in September 2024 allow the contracts to trade freely in the U.S.

Lawsuit against Nevada Gaming Control Board. Source: Kalshi

The lawsuit comes after the Massachusetts Gaming Commission (MGC) subpoenaed Robinhood Financial in December 2023 to provide information on its role in facilitating the trading of prediction market contracts on Kalshi’s platform.

The MGC is investigating whether Robinhood’s actions could be deemed illegal in Massachusetts, despite federal law permitting Kalshi to offer and maintain its prediction market.

The complaint states that the gaming enforcement officials in New Jersey began investigating Kalshi’s activities in March 2023 after receiving a complaint from an anonymous party.

The investigators from the New Jersey Division of Gaming Enforcement interviewed Kalshi CEO David Benhaim and co-founder Tarek Mansour in April 2023 and informed them that they would be issuing a cease and desist order to halt Kalshi’s sports-related contracts in the state.

On April 27, 2023, the gaming enforcement officials sent the cease and desist order to Kalshi, which also demanded the company pay any relevant administrative penalties.

In response, Kalshi filed a lawsuit against the gaming enforcement officials on February 8, seeking an injunction to prevent the state regulators from taking any further action to shut down the company’s sports-related contracts in the state.

The lawsuit is focused on two issues:

The state regulators are overstepping their authority in trying to shut down Kalshi’s sports event contracts, which are covered by the Commodity Exchange Act and fall under the CFTC’s jurisdiction.

The cease and desist orders from both state regulators fail to recognize that Kalshi’s event contracts are two-sided markets which trade as swaps, as recognized by the Supreme Court case of Richmond, validly sued in 1990, and are not covered by the state gaming statutes. Instead, the orders appear to be focused on a sports-betting book model where the house controls the market, which is not applicable in this case.

Kalshi co-founder Tarek Mansour told Blockworks that the gaming enforcement officials in both states had been threatening for months to shut down Kalshi’s sports contracts, despite Kalshi repeatedly explaining that its contracts are clearly not covered by state law and are exclusively subject to federal regulation by the CFTC.

Additionally, the Nevada Gaming Control Board sent Kalshi a cease and desist order for its election contracts, which a United States judge ruled in September 2024 allow the contracts to trade freely in the U.S.

Lawsuit against Nevada Gaming Control Board. Source: Kalshi

The lawsuit comes after the Massachusetts Gaming Commission (MGC) subpoenaed Robinhood Financial in December 2023 to provide information on its role in facilitating the trading of prediction market contracts on Kalshi’s platform.

The MGC is