As its national profile, menu of sports-related markets, and advertising presence continue to grow, so too does the court docket in matters involving Kalshi.
On Wednesday, a trio of complaints in state civil courts in Massachusetts, Ohio, and South Carolina were filed against Kalshi and subsidiaries, as well as Susquehanna International Group, LLP, in what appears to be a coordinated effort from a common entity to recover from those companies alleged illegal gambling losses. The existence of the lawsuits was first circulated publicly on social media by gaming attorney Daniel Wallach, who wrote that there is also a case in Illinois that InGame could not independently confirm.
Kalshi, of course, is a Designated Contracts Market (DCM) that is registered with and regulated by the Commodity and Future Trading Commission (CFTC) and has become a lightning rod in recent months, owing to its foray into sports markets on its prediction market platform that facilitates the buying and selling of positions on various events such as elections, the weather, and sports.
So far, the litigation involving Kalshi has centered on disagreements with the CFTC itself, in a recently retired dispute that arose during the Biden administration, plus disputes with state-level gaming regulators and public officials in Nevada, New Jersey, Maryland, with potential actions coming in additional states including Arizona, Ohio, Illinois, and Montana.
Kalshi so far has won preliminary injunctions in Nevada and New Jersey while the matters proceed, and an appeal is underway to the Third Circuit Court of Appeals on the ruling in the New Jersey case.
And Kalshi is likely to defend itself in all of the new actions by arguing that it is regulated federally by the CFTC, that it offers a financial instrument and not a gambling product, and that the CFTC has exclusive jurisdiction over its activities. We will know more for sure when defendants issue an answer in the case likely in the next 30 days.
Reached by InGame Friday, a Kalshi representative said the company had no comment on the complaints.
Market making
The thrust of the earlier disputes concerns the overarching, ultimate legality of Kalshi’s offerings, which partners Robinhood and Webull have extended onto their platforms, hence their involvement in these new state actions. What’s unique about these cases (as in the Massachusetts complaint shown above) is that the allegations focus on alleged gambling activity that has already occurred and continues to occur, rather than the overall legality of the transactions themselves.
And furthermore, these cases are notable for the involvement of Susquehanna International Group, LLP, led by very wealthy and well-known businessman Jeff Yass, whose private company also known as SIG serves as market maker for Kalshi, providing liquidity for trading on the platform.
“In practice, these market makers employ precisely the same business model as the sportsbooks this Commonwealth has regulated,” the plaintiff Massachusetts Gambling Recovery LLC writes.
Plaintiff goes on to explain its main cause of action and offers an explanation for why the state of Massachusetts has not yet transmitted a cease-and-desist order to Kalshi or its peers.
“The Commonwealth of Massachusetts has not yet entered the fray. But it does not need to. Like many states, Massachusetts offers an additional safeguard against illegal, unregulated gambling: its Statute of Anne,” which targets organizers of illegal gambling and according to the plaintiff allows “a losing party to sue the winning party” for the value of gambling losses.
Much of the complaint is devoted to the effort to establish the roles of Kalshi and SIG and certain subsidiaries as market makers that are “buying and selling event contracts on the platform.”
The complaint explores the role of market makers, as well as the technicalities of the transactions, cases where the market makers bear more risk than others.
“In all relevant respects here, the market makers here operate just like traditional sportsbooks. And that is unsurprising. Traditional sportsbooks are a type of market maker — one focused only on event contracts for sports-related events.”
Ultimately, the plaintiff alleges that the conduct is illegal, because Massachusetts law “exempts from the Statute of Anne only gaming conducted in licensed gambling establishments … and presently the Commonwealth licenses seven sportsbooks.”
The complaint goes on to make a number of points about Kalshi’s overall profile similar to issues ongoing in the cases involving the state regulators.
Where this all goes is anyone’s guess, though we did learn this week via the confirmation hearing of CFTC chair nominee Brian Quintenz that under his future leadership, the CFTC is not likely to have anything at all to say or do soon about voluminous trading of sports-related event contracts in any of the 50 states.
