Kalshi Hit With Class Action Lawsuit Over Alleged Illegal Sports Betting

^{Luana Lopes Lara, the founder of Kalshi, has publicly voiced her disagreement on social media with the new class action lawsuit that she calls "baseless." (Photo: @Neo on X)}

Prediction market platform Kalshi is facing a new type of legal pressure, as a federal class action lawsuit is accusing the company of operating what amounts to illegal sports betting across the United States.

The lawsuit, filed on Wednesday, Nov. 26 in the Southern District of New York, claims that Kalshi has misrepresented how its sports prediction markets work to customers.

Lawsuit: Kalshi Sets Odds Via Market Makers

The suit includes seven named plaintiffs who are looking to recover all money they wagered on Kalshi, along with as much as triple that amount in damages. However, the suit was filed on behalf of what the lawsuit says could be thousands of potential class members.

Broadly, the lawsuit claims that Kalshi operates primarily as a sports betting website, saying that approximately 90% of all activity on the platform in September was tied to sports. It alleges that Kalshi has violated consumer protection and gambling laws in more than 30 states.

However, the suit also makes the claim that Kalshi has misrepresented its business model. Rather than purely acting as a peer-to-peer marketplace, the lawsuit alleges that Kalshi has used associated companies to add liquidity to its markets when contract prices drift from the company's internally projected odds. 

The lawsuit names Kalshi Trading LLC and KalshiEX as subsidiaries acting as market makers taking positions against customers and also alleges that the platform partners with hedge funds such as Susquehanna International Group in order to provide additional market making.

“While consumers may bet on either side of the House baseline in any sportsbook, the House sets the betting line, and profits when consumers pick wrong,” the lawsuit reads. “Kalshi’s market makers set the baseline. Upon information and belief, Kalshi coordinates directly with its market makers to set betting lines.”

In short, the lawsuit alleges that users are often unwillingly betting against the house and market makers operate the same way illegal sportsbooks do.

Kalshi: ‘Smear Campaign’ Lacks Merit

Kalshi has disputed these claims, with founder Luana Lopes Lara calling some of the accusations “a pure smear campaign.”

“Kalshi is an exchange. It’s peer-to-peer and there is no house,” Lopes Lara wrote on X. “Like any financial exchange, we have market makers that compete openly against each other and help bootstrap liquidity. Anyone can sign up to our market maker programs, where you commit to liquidity obligations.”

The federal lawsuit joins a growing list of legal challenges that Kalshi is facing from state regulators and tribal groups. Last week, a federal judge ruled that Kalshi had to operate under Nevada’s sports betting regulations, siding with the Nevada Gaming Control Board after previously issuing a preliminary inunction that had allowed Kalshi to continue offering its sports event contracts even after the regulator had hit Kalshi with a cease-and-desist order earlier this year.