Utah's Attorney General has filed a civil lawsuit against prediction market operator Kalshi, two Susquehanna trading firms, and related affiliates, alleging violations of state gambling laws. The suit, filed in Utah's Third District Court on October 20, seeks to block Kalshi from offering sports, election, and other event contracts to Utah residents, and requests up to $61.2 million in restitution and financial penalties.
Allegations Against Kalshi
The state claims Kalshi generated between $30.6 million and $61.2 million in fees from Utah-based accounts, with more than $3 billion in estimated wagers placed by over 32,000 verified users. Utah alleges that Kalshi’s event contracts function similarly to traditional sportsbook bets, including parlays and proposition bets, and that the company knowingly offered these contracts despite the state’s longstanding prohibition on gambling. The complaint also names two Susquehanna trading firms as defendants, marking the first time market makers have been included in such a lawsuit.
Legal and Regulatory Context
Utah’s constitution bans all forms of gambling, including lotteries, casinos, and sportsbooks. The state asserts that Kalshi’s activities have caused financial losses and contributed to gambling-related mental health issues among residents. Kalshi disputes the allegations, maintaining that its operations are federally regulated as a derivatives market overseen by the Commodity Futures Trading Commission (CFTC), and that state law should not apply. The ongoing federal litigation has so far favored Utah, with federal courts declining to block state enforcement actions against Kalshi.
Implications for the Industry
This lawsuit highlights the ongoing tension between state and federal oversight of prediction markets and event-based contracts. For operators and affiliates, the case underscores the importance of adhering to state-specific regulations, even when federal licenses are in place. The inclusion of market makers as defendants could have broader implications for liquidity providers and partners in the prediction market space. Regulators and industry stakeholders are closely monitoring the outcome, as it could influence how event contracts are classified and enforced nationwide.
Key takeaways
- Utah is seeking up to $61.2 million from Kalshi and related firms for alleged illegal gambling.
- The lawsuit names market makers as defendants, a first in prediction market litigation.
- Kalshi maintains its operations fall under federal, not state, jurisdiction.
- The dispute may set precedents for state versus federal regulation of event contracts.