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Read Full BioThe holidays are no let-up for the legal challenges against prediction markets, as Kalshi has been hit with a nationwide, class action lawsuit alleging it is duping users into believing it is not a sportsbook.
The suit, filed in New York federal court on behalf of thousands of potential class members, features seven named plaintiffs who claim they were deceived into losing money. It seeks to recover the money they have bet on the platform, and demands a jury trial with the potential for damages to be tripled.
Kalshi has faced a string of lawsuits and cease-and-desist letters, primarily from state gambling regulators and tribal groups that argue it is offering unlicensed sports betting.
The plaintiffs in this case are Crystal Pelayo, Jacob Tingle, Isaiah Esquibel, Gino Gadaleta, Brice Gambill, Raleigh Melancon, and Micah Parker.
The latest lawsuit appears different from the lawsuits filed in six states by groups named Gambling Recovery LLC. Those lawsuits similarly seek to recoup user losses on the platform, citing an old British law that entitles losers to recover illegal gambling losses.
Kalshi Tricking Users Into Believing They Are Not Playing Against The House
The latest lawsuit claims that Kalshi is essentially a sportsbook, as, despite claims that users are trading against other users, they are frequently up against market makers.
It alleges Kalshi’s platform “resembles a betting exchange where users place wagers indistinguishable from bets placed against a house.”
According to the lawsuit, consumers are often betting against Kalshi itself—through “market maker” subsidiaries Kalshi Trading LLC and KalshiEx, or hedge-fund partners, like Susquehanna International Group.
As a result, the plaintiffs claim they have been deceived by Kalshi and want the company to refund its losses. Despite arguing that it is not a betting platform in court, Kalshi has frequently promoted itself as offering legal betting in all 50 states.
Kalshi Claims Allegations Are ‘Meritless Fiction’
Kalshi has been quick to respond to the allegations. A spokesperson stated, “This lawsuit demonstrates many fundamental misunderstandings about how federally regulated DCMs operate. Anyone who understands how Kalshi works will see it for what it is—meritless fiction. We look forward to responding further in our court filings.”
Co-founder Luana Lopes posted on X that the baseless lawsuit is nothing more than a smear campaign. She accused accounts that are reporting the news of “being paid by our competitor to amplify a baseless lawsuit.”
We should note that we have not been paid by any of Kalshi’s competitors to report on this story.
Luana added: “Kalshi is an exchange. It’s peer-to-peer and there is no house. Anyone can place orders and trade against anyone else, whether it’s a person or an entity. Like any financial exchange, we have market makers that compete openly against each other and help bootstrap liquidity. Anyone can sign up to our market maker programs, where you commit to liquidity obligations: if you’re interested, email support and we’ll get you set up.”
Lawsuit Includes Sweeping Allegations Against Kalshi
Attorney Andrew Kim said the lawsuit, along with those filed by Gambling Recovery LLC, is likely to face the same arguments from Kalshi – that it is a federally licensed platform. In a thread on X, Kim also said, “There are a lot of allegations in the complaint that have little to do with the claims.”
The complaint is 44 pages long and contains frequent allegations that Kalshi users are betting against the house, and its contracts are illegal under the Commodity Exchange Act (CEA). The CEA states that gaming contracts are prohibited, but this rule has not been enforced by the Commodity Futures Trading Commission (CFTC).
While many previous lawsuits have focused on one state, the latest challenge seeks to certify a “nationwide” class of consumers who were allegedly harmed. It alleges that New York’s general business law, California’s unfair competition law, and Florida gambling laws, among other laws, have been broken.
Courts Will Decide Future Of Prediction Markets
The CFTC looks unlikely to take any steps to limit Kalshi and other prediction market platforms. Acting chair Caroline Pham dismissed concerns about the markets in a response to senators earlier this week. Incoming chair Michael Selig has also been reluctant to take a stance against sports or any other markets.
That leaves it up to the courts to decide on the future of prediction markets. Kalshi suffered a legal setback in Nevada this week, but said it will continue to fight for its legal status amid a growing number of complaints.
