Kalshi files lawsuit against Nevada and New Jersey over sports contracts regulation
Kalshi, a platform that operates a prediction market, recently took legal action against the Nevada Gaming Control Board and the New Jersey Division of Gaming Enforcement. This step followed the issuance of cease and desist orders by both regulators, instructing Kalshi to halt its sports-related contracts within the two states. The crux of Kalshi’s argument is that the jurisdiction over these contracts lies with the Commodity Futures Trading Commission (CFTC) rather than state-level bodies. The company asserts that its event contracts should be classified as swaps rather than traditional sports-betting products since the house does not exert control over the market.
Tarek Mansour, one of Kalshi’s co-founders, emphasized the innovative nature of prediction markets, highlighting them as a modern-day invention. This legal battle is not the first of its kind for Kalshi. The Nevada Gaming Control Board had previously issued a cease and desist order on the platform’s election contracts. However, a U.S. judge ruled in September 2024 that these contracts were lawful, allowing Kalshi to trade them without any restrictions in the United States.
The regulatory landscape governing such markets is in flux, as demonstrated by the recent announcement from the CFTC on February 4, 2025. Acting Chairman Caroline Pham revealed a change in the Commission’s regulatory approach. The focus has shifted towards fraud prevention and victim support while moving away from regulation through enforcement. The CFTC’s Division of Enforcement will now concentrate on combating fraud, protecting market participants, and steering clear of enforcement actions as a means of regulation.
This shift in strategy at the CFTC aims to enhance operational efficiency by merging previous task forces into two distinct entities—the Complex Fraud Task Force and the Retail Fraud and General Enforcement Task Force. These specialized units will be responsible for investigating and addressing market manipulation and fraud across diverse sectors. The move reflects the CFTC’s commitment to ensuring market integrity and shielding participants from evolving fraudulent activities. By allocating resources strategically, the agency seeks to combat fraud effectively without penalizing innocent traders. This realignment is a strategic move to strengthen enforcement efforts and bolster investor protection.