Kalshi has sued authorities in Utah, including Gov. Spencer Cox and Attorney General Derek Brown, in an effort to stop them from shutting down the platform in the state.
The lawsuit, filed Monday in the U.S. District Court for the District of Utah, claims that authorities in Utah are planning to ban the prediction market for violating gambling bans, and calls on a judge to issue an injunction to prevent them from doing so.
Kalshi-Utah-complaintUtah, which has no legal gambling whatsoever, is the first state without legal sports betting to be sued by Kalshi. The company has also sued Nevada, New Jersey, Maryland, Tennessee, New York, Ohio, and Connecticut. The district courts appear to be split on the merits of the lawsuits — in New Jersey and Tennessee, Kalshi won an injunction, while in Maryland it failed to win one and in Nevada, an initial injunction was dissolved. Kalshi is also being sued in state court in Massachusetts and in federal court by tribes in California and Wisconsin.
Kalshi says enforcement is ‘imminent’
The initial complaint claims that the state “will imminently bring an enforcement action against Kalshi with the intent to prevent Kalshi from offering event contracts for trading on its federally regulated exchange.”
It cited an interview with Cox in Bloomberg Law and an op-ed by Brown in the Deseret News, in which he wrote that he had a plan to address the rise of prediction markets.
“Utah’s stated intent to prohibit Kalshi from operating is a form of regulation that intrudes upon the federal regulatory framework that Congress established for regulating derivatives on designated exchanges,” Kalshi’s lawyers argued.
They added, “Since those statements, Defendants have not engaged with Kalshi to provide any assurances about whether they will enforce those laws against it.”
It noted that Kalshi’s legal team previously had a “positive working relationship” with the Utah Attorney General’s Office, but that the recent statements, combined with a lack of engagement, have led the company to believe that enforcement could be “imminent.”
“Kalshi therefore has no option but to seek judicial relief,” the complaint said.
Kalshi claims Utah ban preempted
Like in other lawsuits against states, Kalshi argues that any gambling laws that the business may appear to violate — in this case, a sweeping ban rather than a licensing requirement or minimum age — are “preempted” by the federal Commodity Exchange Act (CEA).
”The text, purposes, and statutory history of the CEA leave no question that Congress sought to preempt state regulation of derivatives on exchanges overseen by the CFTC, known as ‘designated contract markets’ or ‘DCMs …’” the complaint says. “The text of the statute gives the CFTC ‘exclusive jurisdiction’ over trading on federally regulated exchanges.”
Kalshi contends that Congress specifically intended for the CEA to overrule state gambling bans, because states had previously tried to ban futures contracts as a form of gambling.
The complaint went on to argue that Kalshi’s contracts are not only lawful under federal law, but also lawful under Utah’s anti-gambling laws, as those laws provide an exception for “lawful business transaction[s],” which it says would cover Kalshi’s operations as a registered DCM.
Kalshi’s lawyers also cited the CFTC’s recent amicus brief in Crypto.com’s Ninth Circuit lawsuit against Nevada. In that brief, the CFTC said its “jurisdiction supersedes State as well as Federal agencies, because commodity derivatives markets require nationally uniform rules.”
The complaint also argued that Kalshi contracts have non-gambling uses. It references a recent Federal Reserve report that found Kalshi’s projections of interest rates outperformed traditional forward interest rate markets. It also cited sports-based insurance firm Game Point Capital’s recent decision to hedge $30 million worth of risk on Kalshi annually.
These uses, Kalshi argued, show that the prediction market’s event contracts fit the definition of a “swap” under the Commodity Exchange Act, which requires a “potential financial, economic or commercial consequence.” Thus, the contracts are subject to that law, rather than state laws.
‘Irreparable harm’
Kalshi’s lawyers added that the business would suffer “irreparable harm” if it were shut down in Utah.
“Shutting down Kalshi’s ability to offer event contracts in Utah would threaten Kalshi’s viability and require devising complex technological solutions whose feasibility is entirely untested and unclear,” the complaint said. That appeared to be a reference to geofencing, which Kalshi has not set up, but is fairly routine for sportsbooks.
“It would also impair Kalshi’s existing contracts with consumers and business partners, subject Kalshi’s users to uncertainty and loss, undermine confidence in the integrity of Kalshi’s platform, threaten its prospective business relationships, and jeopardize Kalshi’s status as a CFTC-approved exchange.”
Important hearing in Nevada
The new lawsuit comes just ahead of an important hearing related to Kalshi’s status in Nevada.
The U.S. District Court for the District of Nevada will hear oral arguments about whether to move a state-court lawsuit filed by the Nevada Gaming Control Board against Kalshi to federal court or send it back down to the state court.
If it is sent back to the state level, Nevada appears likely to win an injunction against Kalshi, similar to the one it won to temporarily block Polymarket from the state, which could mean Kalshi would have to shut off access in one state for the first time.
