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Kalshi, the prediction market operator, has taken legal action against the Nevada Gaming Control Board and the New Jersey Division of Gaming Enforcement. Notably, Kalshi has filed a suit challenging the recent cease-and-desist orders, which caused it to suspend all sports-related contracts in the two states.
Kalshi Asserts CFTC Jurisdiction in Lawsuit
In the lawsuit, Kalshi maintains that its contract is under the U.S. Commodity Futures Trading Commission (CFTC) regulatory domain. Hence, it argues that the state-level gaming regulators do not oversee its activities as it is not a traditional sports betting firm.
Tarek Mansour, co-founder of Kalshi, notes that its event contracts operate as two-sided swap markets. He emphasizes that prediction markets, an innovation of the 21st century, have been misunderstood, just like any novel idea.
Mansour expressed Kalashi’s readiness to defend the pioneered technology in court. According to the report, a U.S. judge determined Kalashi’s election-based contracts legal in September 2024.
CFTC’s Regulatory Shift and Industry Impact
The current lawsuit follows regulatory pressure from Nevada officials who once again issued a cease-and-desist order on the election-based contracts.
Meanwhile, the U.S. CFTC has signaled a shift in its regulatory stance. Caroline Pham, acting Commissioner, recently stated that the commission focused more on protecting fraud victims. Pham also highlighted that the CFTC would watch out for other legal infractions in the space.
In one such move, the CFTC probed the Super Bowl event contracts offered by Kalshi. After a thorough investigation, the CFTC did not take any enforcement action against the prediction market operator. The CFTC has also targeted crypto betting platforms like Polymarket in the past.
Many in the sector consider this development a more friendly approach from federal regulators and a shift from the tough stance taken under President Biden’s administration.
Broader Legal Battle Over Prediction Markets
In addition to Kalshi, the CFTC reviewed Crypto.com’s Super Bowl-related predictions contract to determine whether the contracts complied with set guidelines.
Crypto.com launched its sports event trading product last year, allowing users to make predictions. According to Kris Marszalek, CEO of Crypto.com, the platform is fully regulated. However, the CFTC has initiated a probe and could decide by April whether to carry out enforcement action.
