Kalshi, a prominent player in the prediction market industry, is under fire as a group of plaintiffs from six states filed a federal lawsuit against the company last week. The lawsuit, filed in New York, accuses Kalshi of misleading customers with its market-making practices, violating state gambling laws, and engaging in deceptive activities to unjustly enrich itself. This legal challenge follows a Nevada federal judge’s decision to lift a preliminary injunction that had allowed Kalshi to continue its operations in the state.
Kalshi, known for handling more than $1 billion in NFL event contracts in the first month of the 2025 season alone, has dismissed the lawsuit as “meritless fiction.” In a statement dated November 26, the company asserted that the allegations demonstrate fundamental misunderstandings about the operations of federally regulated DCMs (designated contract markets). The lawsuit marks a significant development as it is believed to be the first class-action suit against a prediction market—an asset class that has seen rapid growth over the past six months. The lawsuit could potentially spark further debate on the role and influence of market makers in the exchange trading ecosystem.
The plaintiffs argue that market makers, such as those partnered with Kalshi, benefit unduly at the expense of individual consumers. In April 2024, Susquehanna International Group (SIG) formed a partnership with Kalshi, becoming the first institutional market maker to establish a trading desk dedicated to event contracts. Founded by billionaire Jeff Yass, SIG is a global quantitative trading firm known for serving as a market maker across various trading products, including options and ETFs. While Kalshi has partnered with other market makers, SIG is seen as its primary partner. The lawsuit claims that market makers enjoy unfair advantages, such as reduced fees and differing position limits, which purportedly diminish their financial risks and provide them with enhanced market access.
Plaintiffs argue that such advantages leave individual consumers at a disadvantage, mistakenly believing they are competing against other consumers rather than institutional entities. A market maker’s role is to act as a counterparty, ensuring liquidity in the market. For example, a buy contract on the Detroit Lions defeating the Dallas Cowboys might be priced at 61 cents, with potential payouts and counterparties involved. However, users are often unaware of whether their counterparty is an institutional market maker like SIG or another consumer.
Kalshi co-founder Luana Lopes Lara responded to these allegations, taking to social media to express her views. In a detailed post, she refuted the claims, stating that the lawsuit was an attempt to spread falsehoods about prediction markets. She emphasized that Kalshi operates as a peer-to-peer exchange without a controlling “house,” and explained that Kalshi Trading, the company’s own market maker, accounted for less than 6% of the platform’s volume last month. She criticized narratives suggesting users were misled into thinking they were betting against peers when they might have been betting against institutional entities.
Moreover, Lopes Lara commented on the growing resistance from entrenched interests, drawing parallels with the challenges faced by the crypto industry. She suggested that there are intentional efforts to discredit prediction markets, highlighting the importance of skepticism when consuming online information.
Alfonso Straffon, an analyst in the sports betting industry, also weighed in with a letter to the US Commodity Futures Trading Commission, illustrating how sports betting markets resemble financial markets. He pointed out that bookmakers in sports betting operate similarly to market makers in financial contexts, providing liquidity on platforms like Kalshi.
The ongoing legal battles are not isolated incidents. In addition to the lawsuit filed in New York, Kalshi faces regulatory challenges from several other states, including New Jersey, Illinois, Nevada, and Ohio, all of which have issued orders against the platform. Furthermore, Massachusetts has a pending case, with a hearing scheduled for December 9 to address the state’s injunction and Kalshi’s motion to dismiss the case.
The broader prediction market industry is on the cusp of transformation as major players in the sports betting sector prepare to launch their own prediction platforms. Companies like DraftKings and FanDuel are expected to enter the market soon, followed by others such as Fanatics, Coinbase, and Truth Social. Meanwhile, Kalshi is also contending with news of a joint venture between SIG and Robinhood to create a new prediction market exchange, adding pressure to an already heated competitive landscape.
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