Kalshi Sues New Jersey and Nevada over Cease Orders
Kalshi is pushing back after regulatory bodies in Nevada and New Jersey cracked down on its sports prediction markets, claiming they constitute sports betting.
LISTEN TO THIS ARTICLE:The prediction market has filed lawsuits against the Nevada Gaming Control Board (NGCB) and New Jersey's Division of Gaming Enforcement (DGE) following the cease and desist orders issued by the regulators against its sports-related events contracts.
The two states accuse Kalshi of illegally operating as a sports betting platform, contravening their respective gaming regulations. The NGCB particularly referred to the platform's activities as an "unlicensed sports pool," whereas the DGE claimed the company breached its Sports Wagering Act, which requires licensure for betting operators.
However, in its filing, Kalshi asserts that its contracts are financial derivatives, not bets, and are subject to federal regulations under the Commodity Exchange Act.
Additionally, the lawsuits claim that only Congress has sole authority to regulate and oversee event contract platforms. The firm contends that state actions are preempted by federal law on two grounds: field preemption, which establishes federal dominance over the regulatory field, and conflict preemption, which prevents state enforcement from interfering with federal authority.
Kalshi stated that it participated in several meetings with regulatory officials in New Jersey to reach a mutually acceptable compromise but made no headway. The company also questioned the practicality of implementing geofencing technology to exclude specific markets from its platform.
We have been targeted before, we have fought before, and we have won before. This time will be no different. The threatened actions in Nevada and New Jersey seek to undermine not just Kalshi's contracts, but the authority granted by Congress to the Commodity Futures Trading Commission, which has safely and effectively governed commodities markets for decades.
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Gambling or Financial Trading?
At the heart of the dispute lies an important question: should event-based trading, such as wagering on sports outcomes or election results, be categorized as gambling, subject to state regulation, or as regulated financial trading overseen by federal authorities?
Nevada regulators say Kalshi's products constitute gambling because the outcome depends on events outside of the participants' control. New Jersey regulators also pointed out that betting on local college sports is against the state's constitution.
However, Kalshi's defense relies on its status as a designated contract market (DCM) regulated by the CFTC. The platform argues its event contracts are structured as two-sided markets, similar to swaps, rather than traditional sportsbook wagers, and are subject to the same oversight as traditional derivatives.
The firm noted that stopping operations in certain states could put its CFTC status at risk.
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