Class Action Lawsuit Accuses Kalshi of Operating Illegal Sportsbook

The lawsuit seeks a jury trial and aims to recover losses for thousands of users, potentially carrying treble damages for the alleged violations. The news was first reported by law expert Daniel Wallach. 

Allegations of a Hidden “House”

The core of the lawsuit challenges Kalshi’s reputation as a peer-to-peer exchange. In a true peer-to-peer system, a user bets directly against another individual consumer.

However, the plaintiffs argue that Kalshi users are frequently betting against the company itself or its sophisticated partners. The filing describes this dynamic as “duping” customers.

Users believe they face a fair market of peers, but the lawsuit claims they are actually betting against “the House.”

Specific entities named in the complaint include Kalshi subsidiaries like Kalshi Trading LLC and KalshiEx. A Kalshi representative previously described Kalshi Trading as merely one “peer” among many in the ecosystem.

The lawsuit rejects this characterization. It asserts that Kalshi Trading functions directly as the House. By taking the opposite side of consumer trades, these affiliates allegedly mimic the mechanics of a traditional sportsbook rather than a neutral exchange.

Market Maker Advantages and Mechanics

The complaint details the involvement of external institutional market makers, including hedge funds like Susquehanna International Group. These firms reportedly provide liquidity by betting against consumers when wagers deviate from Kalshi’s internal projections.

The lawsuit argues that this model is indistinguishable from illegal “House betting” operations prohibited by law. In this setup, the House sets the line and profits when the consumer predicts incorrectly.

Institutional participants allegedly receive significant systemic advantages unavailable to retail traders. The filing outlines benefits such as reduced or zero fees, different position limits, and enhanced technological access.

These integrations allow market makers to manage their risk more effectively than the average user. The plaintiffs claim this creates an uneven playing field where the “House” and its partners hold a distinct financial edge over the consumer base.

Kalshi Defends Federal Status

Kalshi has issued a strong denial regarding the claims. A company spokesperson labeled the lawsuit “meritless fiction.” The company argues that the legal challenge relies on a “fundamental misunderstanding” of Designated Contract Markets (DCMs).

Kalshi maintains that its operations fall under federal oversight by the Commodity Futures Trading Commission (CFTC). Therefore, they assert their contracts are not subject to state-level gambling regulations.

This lawsuit arrives during a period of legal friction for the platform in other jurisdictions. In Nevada, a federal judge recently vacated a preliminary victory for Kalshi.

This legal shift may allow Nevada gaming regulators to halt the company’s sports-contract offerings within the state. The regulators argue these specific contracts constitute unlicensed sports betting under Nevada law.