A group of clients has sued Kalshi Inc., alleging that the prediction market deceives consumers about its business practices and acts unlawfully as a sports bookmaker.
On Wednesday, seven users filed a lawsuit in a New York court. They claim that despite not having any state-issued gaming licenses, the firm deceives clients by posing as a supplier of “legal sports betting.”
Details of the case
Kalshi Trading, which the clients claim functions as a market-maker and generates betting odds that are detrimental to ordinary users, is also the object of the action.
“When consumers place bets on Kalshi, they face off against money provided by a sophisticated market maker on the other side of the ledger,” the users bringing the lawsuit said. “Market makers make it possible for consumers to place illegal, unregulated wagers against the House.”
The proposed class action was filed by the legal firm Lieff Cabraser Heimann & Bernstein. This exacerbates Kalshi’s mounting legal issues, since the business has previously been sued by Native American tribal organisations and state gaming authorities for allegedly operating illicit sports betting activities.
According to Kalshi, state gaming laws do not apply to the derivatives market it runs, which is governed by federal regulation from the Commodities Futures Trading Commission.
The company gives a statement
Luana Lopes Lara, the company’s founder, denied the accusations in a public statement. She claimed that their rivals had fabricated the case. Lara said that the assertions are predicated on an ignorance of event markets.
“This account and others are being paid by our competitor to amplify a baseless lawsuit. The allegations are false, and reveal a fundamental – and perhaps intentional – misunderstanding of how these markets work,” she said. According to her, any member can supply liquidity on the peer-to-peer trading platform.
Same trouble for Polymarket
Polymarket encountered a similar issue. In 2022, a settlement with the CFTC prohibited the company from providing services to U.S. consumers. By purchasing a derivatives exchange and clearinghouse in September, Polymarket regained the right to conduct business domestically.
With the new $1 billion in investment, Kalshi’s overall valuation has increased to $11 billion. This comes just two months after a $300 million fundraising. Polymarket, a competitor prediction platform, is also aiming for a valuation of up to $15 billion in its upcoming investment round.
By allowing users to wager on political events, both sites gained enormous popularity last year. After they correctly anticipated the outcome of the mayoral race in New York City, their prominence increased even more.
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