Washington state became the latest to sue a prediction markets provider, after it alleged Friday that Kalshi violated state gambling laws through its products.
According to the complaint, Washington state has a tightly regulated gambling market, including a ban on online gambling, but Kalshi’s products circumvent those regulations.
“Kalshi’s website and app show consumers a range of events they can bet on as well as the odds for those different events, which dictate how much the bettor will be paid if the event occurs,” a state news release states. “This is exactly how sports betting and other gambling operations work. Kalshi advertises that they allow consumers to “bet on anything” by simply calling their service a “prediction market” rather than a “game”.”
The lawsuit said Kalshi’s advertisements referred to “legal gambling” and alleged that the company’s activities met the state’s definitions of “gambling,” “professional gaming,” “betting creation” and other key state provisions. It also included a provision alleging that Kalshi’s products promoted gambling addiction and targeted students in particular.
Kalshi moved to bring the case to federal court, saying he was already litigating these issues in other federal courts and received “no warning or dialogue” from Washington before the trial.
Washington’s filing is part of the state’s growing backlash against prediction market providers. Prediction market providers and their supporters, including Commodity Futures Trading Commission Chairman Mike Selig, say these companies offer derivatives contracts that are properly regulated at the federal level. The states argued that these companies offer gambling products disguised as something else and therefore should be subject to state gambling laws.
Although prediction market providers and states have scored some early legal victories, this argument is likely to end up before the U.S. Supreme Court, legal experts told CoinDesk.
Actions in Nevada
The lawsuit came a week after Nevada won an appeals court victory allowing it to seek a temporary restraining order against Kalshi, forcing the company to take away its sports, entertainment and election contracts from the state for at least two weeks. A hearing will be held at the end of those two weeks, on Friday, April 3, at 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 took effect.
Nevada also obtained a preliminary injunction against Coinbase, requiring it to maintain 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 First Judicial District Judge Kristin Luis wrote that Coinbase did not dispute that it offered “event-based contracts related to sporting and other events, including college basketball games, college and professional football games, and elections,” which meet the definition of “sports pools” under Nevada law.
Coinbase is partnered with Kalshi, Judge noted. Like the Kalshi order, this one directs Coinbase not to offer sports, elections, or entertainment deals 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 both part of the Ninth Circuit Court of Appeals.
Read more: Kalshi obtains license to offer margin trading to institutional investors
