Kalshi and partners under pressure from regulators

The Connecticut Department of Consumer Protection (DCP) has initiated a thorough investigation into Kalshi, an innovative prediction markets platform that facilitates trading on event-based contracts.

Connecticut has become the fourth state to scrutinize Kalshi’s operations, following regulatory actions from Nevada, New Jersey, and Ohio, where these gaming authorities have issued cease-and-desist orders. Notably, the Connecticut DCP has not yet taken such measures, signaling ongoing discussions regarding regulatory compliance and market operation standards.

Kalshi has been active in offering sports futures markets nationwide since prior to the Super Bowl. In February, the company formally notified the Commodity Futures Trading Commission (CFTC) of its intent to self-certify market offerings that parallel single-game and player proposition bets. This strategic move gained further traction during the NCAA tournament, where Kalshi featured “to win” markets tied to individual game outcomes.

Regulatory perspectives diverge on whether Kalshi’s event contracts, which the company asserts are under CFTC jurisdiction, essentially constitute unlicensed sports betting operations. This regulatory scrutiny extends beyond Kalshi; other competitors in the prediction market space are also encountering challenges from state regulators.

Kalshi’s partnership with Robinhood, a prominent financial services platform distributing sports event contracts via Kalshi, has led to additional scrutiny. Robinhood has received cease-and-desist notices from regulatory bodies in both New Jersey and Ohio. Furthermore, Massachusetts Secretary of State Bill Galvin has issued subpoenas against Robinhood, intensifying the compliance landscape for firms in this sector.

In a broader context, the Ohio Casino Control Commission (OCCC) has also sent a cease-and-desist letter to Crypto.com, another entity involved in offering similar event-based contracts. In a noteworthy response to these regulatory pressures, Kalshi has initiated federal lawsuits against the New Jersey Division of Gaming Enforcement (DGE) and the Nevada Gaming Control Board (NGCB). Kalshi contends that these agencies are infringing on their federally protected rights to provide event contracts, basing their claims on the exclusive regulatory authority granted to the CFTC.

In an interesting development in New Jersey, following Kalshi’s request for a temporary restraining order and preliminary injunction, a scheduled hearing for April 2 has been postponed. The involved parties have opted to forego the temporary order in favor of pursuing the preliminary injunction. The DGE has until April 18 to submit its response, while Kalshi is required to reply by April 23.

This ongoing legal and regulatory discourse illustrates the complexities and evolving nature of the gambling landscape in the United States, particularly concerning innovative platforms like Kalshi that challenge traditional definitions of sports betting. As industry stakeholders adjust to these developments, the outcomes of these regulatory investigations and legal actions will likely shape the future of prediction markets and the overall gambling industry.