A class action lawsuit filed in New York federal court alleges that Kalshi operated an “illegal, unlicensed sports betting platform” by offering sports event contracts during 2025. The suit names both Kalshi Trading LLC, an affiliated company providing liquidity for Kalshi markets, and Kalshi itself as defendants.
The plaintiffs argue that, while Kalshi presents itself as a federally-regulated financial product, its marketing—using terms like “betting,” “moneyline,” and “parlay”—suggests a sportsbook. However, the portion of the lawsuit focusing on affiliated market makers could have deeper implications for the broader prediction market industry.
Claims Against Kalshi
The five representative plaintiffs—Alexander Hallman, Jeremy Kravetz, Daniel Greenberg, Nathaniel Bee, and Abhijn Gutta—seek to recover losses from sports event contracts they describe as wagers, totaling $4.8 billion between January and September 2025.
The complaint has two main points:
- Misrepresentation – The plaintiffs argue that Kalshi’s interface and language mimic traditional sportsbooks, contradicting its claim that it is not a gambling platform.
- Affiliated Market Makers – While Kalshi positions itself as a peer-to-peer exchange, the suit alleges that many trades involve an institutional market maker affiliated with the company on the opposite side. This, the plaintiffs contend, means users are effectively wagering against “the house” without realizing it. By capturing the bid-ask spread and leveraging data advantages, Kalshi allegedly profits when users lose.
Role of Market Makers
Market makers are critical for liquidity in any financial market, including prediction exchanges. They bridge the gap between buyers and sellers, facilitating trades that would otherwise stagnate. While they assume some risk, their activity ensures smoother trading and more efficient pricing.
Without market makers, small or low-liquidity markets—common on prediction platforms—would struggle to function. The lawsuit raises the question of whether affiliated market makers should be allowed under current U.S. law.
New York lawmakers are reportedly considering a bill that could make it illegal for gambling companies to provide market liquidity for prediction markets. Such a law could fundamentally reshape how Kalshi and similar exchanges operate, potentially increasing transaction costs and altering profitability models.
Advertising Scrutiny
The lawsuit also highlights Kalshi’s marketing practices, including a controversial TikTok ad showing a young woman claiming she won two years of rent through predictions. Critics argue that this type of promotion could mislead consumers and encourage gambling beyond their means—issues heavily regulated in traditional gambling markets.
Similar tactics have appeared in other “skill gaming” apps, such as Solitaire Cash, which has used influencer-driven TikTok campaigns.
