Predictive market operator Kalshi faces a new legal challenge as a class action lawsuit has been filed by a group of users. This case adds to a growing list of disputes surrounding the platform. The complaint accuses the company of operating in a manner similar to an unauthorized sports betting service and of failing to clearly explain how its system actually works.
In brief
- Seven users claim that Kalshi operates as unauthorized sports betting.
- The complaint claims that users are actually betting against Kalshi Trading, which allegedly acts as a market maker.
- Co-founder Luana Lopes Lara rejects the accusations, recalling that Kalshi is a peer-to-peer exchange.
Users challenge sports markets
Seven users filed a complaint claiming that the platform de facto offers sports betting, even though it does not hold a gaming license in any US state. The filing also targets Kalshi Trading, an affiliated entity, accused of acting as a market maker and influencing quotes in ways that could disadvantage participants.
According to the complaint, users do not realize they are betting directly against the company. Client positions would in fact be matched to funds provided by a professional market maker operating behind the scenes, a configuration likened to a bet against “the House”. The plaintiffs believe that this allows Kalshi to make unauthorized bets under the guise of a predictive market.
Consumers do not realize that they are actually being lured into betting against Kalshi. When they place a bet on the platform, they are matched with funds provided by a sophisticated market maker on the other side of the ledger. These market makers thus allow users to participate in illegal and unregulated bets, in other words against the House.
The class action was filed by the law firm Lieff Cabraser Heimann & Bernstein, adding additional pressure on Kalshi, already targeted by other actions from state gaming authorities and Native American tribal groups.
Kalshi's response
Kalshi co-founder Luana Lopes Lara strongly rejected the accusations, which she called inaccurate and based on a misunderstanding of predictive markets. She recalled that Kalshi operates as a peer-to-peer exchange, where users, whether individuals or institutions, trade directly with each other, while market makers participate openly in order to provide liquidity.
She also addressed the role of Kalshi Trading on the platform, stating that “one of the participants in the exchange is our affiliate, Kalshi Trading. This is a common and regulated practice in our industry, which helps provide liquidity for a better user experience. Many financial exchanges have similar setups, especially for new products. »
Alex Immerman, partner at Andreessen Horowitz, also supported this positionemphasizing that predictive markets are designed so that participants do not trade for a house. He noted that large technology and financial platforms are frequently subject to class action lawsuits, citing Meta, Alphabet, Robinhood and Coinbase as examples, and suggested that Kalshi is now subject to a similar level of scrutiny within the industry.
New regulatory hurdle
This complaint comes as Kalshi is already facing a major regulatory defeat. Earlier this week, a federal court ruled that the company is subject to Nevada's gaming laws, which limit its ability to expand its sports-related contracts.
Chief Judge Andrew Gordon in Las Vegas issued a decision made public Tuesday, siding with the Nevada Gaming Control Board and overturning an April 9 court order that had given Kalshi the option to continue listing sports-related contracts. With this decision now in effect, the platform must contend with stricter limits, even as it faces continued regulatory oversight and several simultaneous legal challenges.
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