Washington state has become the latest to sue a prediction markets provider, after alleging Friday that Kalshi had violated state gambling laws through its products.
According to the complaint, Washington has a strictly regulated gambling market, including a ban on online gambling, but Kalshi’s products circumvent these regulations.
“Kalshi’s website and app show consumers a variety of events they can bet on and the odds for those various events, which dictate how much the bettor will be paid if the event occurs,” a news release from the state said. “This is exactly how bookmakers and other gambling operations work. Kalshi advertises that they allow consumers to ‘bet on anything’ by simply calling their service ‘prediction market’ instead of ‘bets’.”
The lawsuit said Kalshi’s ads referred to “legal gambling” and alleged that the company’s activities met state definitions of “gambling,” “professional betting,” “making bets” and other key state provisions. It also included a provision alleging that Kalshi’s products promoted gambling addiction and targeted college students in particular.
Kalshi requested to move the case to federal court, saying he was already litigating these issues in other federal courts and had received “no warning or dialogue” from Washington before the lawsuit.
Washington’s filing continues a growing state backlash against prediction market providers. Prediction market providers and their advocates, including Commodity Futures Trading Commission Chairman Mike Selig, argue that these companies offer derivatives contracts that are adequately regulated at the federal level. States have argued that these companies are offering gambling products disguised as something else and, as a result, should be subject to state gambling laws.
While both prediction market providers and states have scored some initial legal victories, this argument is likely to end up before the US Supreme Court, legal experts told CoinDesk.
Nevada Stocks
The lawsuit came a week after Nevada won an appeals court victory that allowed it to seek a temporary restraining order against Kalshi, forcing the company to remove its sports, entertainment and elections contracts from the state for at least two weeks. At the end of those two weeks, a hearing will be held on Friday, April 3, in which a state judge will decide whether to extend the restriction.
Trade publication Gambling Insider reported Friday that Kalshi users in Nevada were still able to use the platform after the temporary restraining order went into effect.
Nevada also obtained a preliminary injunction against Coinbase, requiring it to continue a pause on its prediction market offerings in the state in an order dated Thursday, March 26, following an initial temporary restraining order issued in early February.
Under Thursday’s order, Nevada District Judge for the First Judicial District Court Kristin Luis wrote that Coinbase did not dispute that it offered “‘event-based contracts’ that relate to sporting and other events, including college basketball games, college and professional football games, and elections,” which meet the definition of “sports groups” as defined by Nevada law.
Coinbase is associated with Kalshi, the judge noted. Like the Kalshi order, this one orders Coinbase not to offer sports, election or entertainment contracts in Nevada, at least until a broader court case is resolved.
The judge gave Coinbase 60 days to “make technological improvements” to comply with the order.
The federal district courts in Nevada and Washington are part of the Ninth Circuit Court of Appeals.
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