Massachusetts Files Suit Against Prediction Market Platform Kalshi

Online prediction market platform Kalshi is now under fire from another venue; this time, the Massachusetts Attorney General has filed a lawsuit on behalf of the Commonwealth of Massachusetts to prohibit Kalshi from offering sports event trading contracts in the Bay State.

Kalshi Under Fire

Several issues are at hand as Massachusetts joins a growing number of other states that have filed lawsuits against the New York-based prediction market platform for offering sports event trading contracts.

The primary concern for these states is that Kalshi is allowed to operate unfettered in all 50 states due to its licensing being governed by the federal Commodities Futures Trading Commission (CFTC). The Supremacy Clause, which allows federal laws to supersede state laws, would render all state laws against it null and void.

Under the Trump administration, the CFTC has thus far refused to intervene, and legal action has been taken by several states against Kalshi and its intermediary, Robinhood. Those states include Nevada, New Jersey, and now Massachusetts.

“The Commonwealth alleges that Kalshi, one of the largest prediction markets in the country, valued at approximately $2 billion, is offering sports wagering under the guise of ‘event contracts’ to Massachusetts residents without the required licensure from the Massachusetts Gaming Commission.”

The suit goes on to add that “The foregoing unlawful conduct exposes residents of the Commonwealth to a plethora of harms, including but not limited to, the public health risks associated with compulsive gambling—a clinically recognized behavioral addiction—and disastrous financial losses. For these statutory violations, the Commonwealth seeks damages, civil monetary penalties, injunctive relief, attorneys’ fees and costs, and any other available relief the Court deems proper.”

Counter Suit

Kalshi has been fierce in defense of its right to offer sports event contracts, scoring legal victories in federal court but suffering a slight setback in Maryland state court last month.

Therefore, it is not surprising that it immediately responded to the Massachusetts suit and has requested that the matter be deliberated in federal court and not the Massachusetts Superior Court, as requested by the AG.

Kalshi has filed a Notice of Removal, which would change the venue from the state Supreme Court to the US District Court for the District of Massachusetts. Because the company operates under the Commodity Exchange Act (CEA), Kalshi believes the CFTC, and not the states, has jurisdiction, which would make this a federal, and not a state, matter.

“The CEA provides the CFTC with ‘exclusive jurisdiction’ over trading on DCMs [designated contract markets], including Kalshi’s exchange on which its event contracts are traded,” Kalshi’s filing reads.

Robinhood has also filed suit after being mentioned in the AG’s filings and believes it will soon be named independently in a separate filing. Andrew Kim, a partner at Goodwin Law, opines that the Massachusetts case may be a bit more complex than the others.

“From a procedural standpoint, this is all very messy, and a court will need time to untangle the different strings,” Kim said. “The Massachusetts AG’s motion for a preliminary injunction in the Kalshi case puts pressure on the court to act quickly; on the other hand, the AG waited this long to file suit, so the court may feel that there’s no true emergency.

“My gut tells me that the federal judge considering Kalshi’s case … is going to be focused on getting it right on jurisdiction and the merits and will be less compelled by any argument by the parties to act immediately.”