This past week was significant for prediction markets, marked by Kalshi's legal challenges in New York, new tax implementations, record trading volumes, and innovative policy initiatives.
The most notable event was a federal court's dismissal of Kalshi's preemption claims in New York, which quickly influenced ongoing legal disputes in several states.
In addition to courtroom developments, North Carolina introduced a tax on prediction markets, Polymarket expanded its offerings with advanced trading products, and recent industry reports indicated that the prediction market sector has surged to an annualized value of half a trillion dollars.
Here’s a summary of the key events in the prediction market landscape this week.
Litigation and Regulatory Challenges Intensify
Kalshi's New York Setback Alters National Legal Landscape
The most significant news emerged from New York, where Judge Analisa Torres denied Kalshi's request for a preliminary injunction against state officials. The court determined that all four criteria necessary for such an injunction were unfavorable to Kalshi, including the likelihood of success, potential irreparable harm, the balance of equities, and public interest considerations.
Judge Torres underscored that gambling regulation has traditionally been governed by state authority, which leads to a “presumption against preemption.”
This ruling had immediate repercussions for other prediction market litigations. Gaming attorney Daniel Wallach noted on X that state attorneys general from Connecticut, Illinois, Minnesota, Utah, and Wisconsin referenced Judge Torres’ ruling as supporting authority in their ongoing cases.
The New York Attorney General's Office also presented this ruling in a separate federal lawsuit initiated by the Commodity Futures Trading Commission (CFTC) against New York.
New Mexico Aims to Shift Kalshi Dispute Back to State Court
Attorney General Raúl Torrez has filed a motion to move New Mexico's lawsuit against Kalshi back to state court, arguing that the case should be adjudicated at the state level rather than in federal court. This motion has led the federal court to postpone scheduling deadlines and cancel an upcoming scheduling conference until the remand motion is resolved.
Similar motions to remand have been successful in Nevada, Michigan, Massachusetts, and Washington. Recently, a judge in Michigan issued a temporary restraining order against Kalshi, mandating the cessation of contracts related to sporting events within the state.
US Soldier Seeks Dismissal in Polymarket Insider Trading Case
A U.S. soldier facing allegations of insider trading on Polymarket has requested the dismissal of the CFTC's lawsuit against him. Defendant Gannon Ken Van Dyke contends that the trades in question were not swaps, thus outside the CFTC's jurisdiction. He also disputes the CFTC's application of Rule 180.1, which is a broad anti-fraud regulation.
Polymarket Faces Lawsuit Over Bitcoin Market Resolution Dispute
Polymarket is also dealing with a new lawsuit regarding its resolution of a market that questioned whether Strategy sold Bitcoin before a defined deadline. Plaintiffs claim that the platform improperly altered its interpretation of the market rules after the relevant events had transpired, preventing winners from receiving their payouts.
This lawsuit raises significant concerns about the governance of prediction markets and the methods platforms use to resolve contested outcomes.
New Class Action Accuses Kalshi of Illegal Data Sharing
A new class action lawsuit filed against Kalshi in the Southern District of New York alleges that the company unlawfully shared users' personal data and trading activities with third-party advertising and analytics firms. The complaint asserts that Kalshi's website transmitted user information and market activities through tracking technologies operated by companies like Google, TikTok, LinkedIn, and AppLovin.
The plaintiffs argue that users' market actions, browsing habits, and trading details were disclosed without appropriate consent.