Kalshi is under mounting legal and regulatory pressure as multiple states pursue litigation, federal authorities investigate prediction market trading, and new geolocation requirements take effect in key markets
Kalshi, a federally regulated prediction market, is now at the center of escalating legal and regulatory disputes as state and federal authorities intensify their focus on event contract trading. The company is actively contesting claims that its sports event contracts are equivalent to traditional sports betting, while also responding to a wave of litigation and new compliance demands across the United States.
State and Federal Legal Actions
Legal challenges against Kalshi have expanded, with at least 20 states now involved in active litigation targeting the legality of event contracts offered by prediction markets. Attorneys general from 44 states recently urged the Commodity Futures Trading Commission (CFTC) to address what they describe as regulatory gaps, arguing that prediction markets have sidestepped state gambling laws and tax obligations. Kalshi disputes these assertions, emphasizing that federally regulated exchanges are subject to state taxes and operate under a national regulatory framework, not a patchwork of state-by-state rules. The company maintains that its contracts fall under exclusive CFTC jurisdiction, not state gambling regulation.
Federal investigations have also intensified. According to a Wall Street Journal report, federal prosecutors and the CFTC are examining cases involving military-event and corporate-earnings contracts. One investigation centers on a U.S. servicemember who allegedly earned over $1 million by wagering on military operations via Polymarket, while another involves a KPMG employee suspected of betting on corporate earnings outcomes using potentially nonpublic information. The full scope of these federal probes remains unclear, but authorities have signaled that charges may be forthcoming in some cases.
Geolocation and State Compliance Orders
Kalshi is facing new operational restrictions in several states. In Washington, a court has ordered the company to implement enhanced geolocation controls by September 2, requiring the use of a multi-source GeoComply solution to block access to sports, election, and other event contracts for state residents. Failure to comply could result in daily fines of $120,000. Similar geofencing orders have been issued in Nevada and Michigan, with identical penalty structures. Kalshi has already begun restricting access in Washington and is seeking reconsideration of the court’s preliminary injunction. The court found that Kalshi’s offering of event contracts violated both the Washington Gambling Act and the Consumer Protection Act.
In Montana, U.S. District Judge Donald W. Molloy recently denied Kalshi’s request for a further stay and a preliminary injunction in its lawsuit challenging the state’s authority to regulate its operations. The judge cited a lack of demonstrated irreparable harm and ordered the state to respond to Kalshi’s complaint within 21 days. This procedural setback leaves Kalshi’s Montana litigation unresolved, but the company may refile for injunctive relief at a later stage.
Industry Partnerships and Institutional Trading
Despite mounting legal pressure, prediction market platforms continue to expand their industry partnerships. Sportradar and Polymarket have broadened their collaboration, now covering official data, streaming, and integrity services for more than 20 sports leagues and approximately 300,000 games annually. The expanded agreement includes new leagues such as Germany’s Bundesliga and the Chinese Basketball Association, increasing the range of sports data available to Polymarket users.
Meanwhile, Cantor Fitzgerald has launched institutional block trading in event contracts, acting as an introducing broker to Kalshi. This move is designed to facilitate larger trades for institutional clients, with Susquehanna Predictions providing pricing and liquidity. The initiative aims to address the historical lack of institutional participation in prediction markets by enabling block trades on a regulated exchange. For context on how regulatory enforcement can impact operator practices, see this coverage of recent self-exclusion enforcement actions in the UK.
Ongoing Debate Over Regulatory Boundaries
The core dispute between Kalshi and state regulators centers on whether event contracts offered by federally regulated prediction markets should be treated as gambling wagers subject to state licensing, taxation, and consumer protection rules. Kalshi argues that its risk-management tools, trading breaks, self-exclusion, and deposit limits meet or exceed state requirements, and that its partnership with the National Council on Problem Gambling demonstrates a commitment to responsible trading. State regulators, however, maintain that sports event contracts are functionally identical to wagers and should be regulated accordingly.
With litigation ongoing in multiple jurisdictions and federal investigations still developing, the regulatory status of prediction markets remains unsettled. Operators, regulators, and market participants are closely watching the outcome of these cases, which could set important precedents for the future of event contract trading in the United States.
Event contracts are financial instruments that allow participants to trade on the outcome of real-world events, such as sports results, elections, or economic indicators. In the U.S., federally regulated prediction markets like Kalshi operate under CFTC oversight, which distinguishes them from traditional sportsbooks regulated at the state level. The legal distinction between event contracts and gambling wagers is central to ongoing disputes, as it determines which regulatory framework—and which consumer protections—apply to these products.
