Kalshi Prediction Market Faces Illegal Gambling Charges From Arizona AG

Arizona faces countersuit claiming Kalshi is a federal derivatives exchange and exempt from the authority of the state’s gambling laws.

The prediction market platform Kalshi is facing multiple criminal charges brought by the state of Arizona, including allegations that it operated without a license and unlawfully accepted wagers on election outcomes.

State Attorney General Kristin A. Mayes announced the charges on March 17, after filing a complaint (PDF) in Arizona Superior Court in Maricopa County. The criminal indictment cites 20 instances of bets the prediction market website accepted in Arizona, most of which involved sports betting.

The lawsuit, which names KalshiEX LLC and Kalshi Trading LLC as the defendants, comes amid a growing crackdown on sports betting sites, sparked by concerns over increasing gambling addiction problems nationwide.

The online sportsbook betting industry exploded after a U.S. Supreme Court decision in 2018, which made it possible for states to legalize sports betting operations. The rise of sports gambling apps like FanDuel, DraftKings and BetMGM followed. They have since been joined by prediction markets, which allow wagering on a wide variety of topics, like Kalshi and Polymarket.

These sites have made instant access to gambling available nationwide, from consumers’ smartphones and tablets, which many say is fueling a rise in gambling addiction problems, particularly among young, college-aged men. The websites themselves are accused of exacerbating the problem, resulting in financial and societal harm, by flagging addictive behaviors among users of their websites and targeting them with focused, allegedly deceptive and misleading promotions.

The rising addiction rates and allegations of deceptive marketing and illegal operations have led to a growing number of sports betting addiction lawsuits now being filed in courts nationwide, alleging that the platforms intentionally design their apps to fuel gambling addiction to make profits off of consumers’ severe financial losses.

Arizona’s lawsuit claims that Kalshi is operating illegally in that state, and has no license to do so. According to Mayes, while most of the counts filed against Kalshi involve incidents of sports betting, at least four incidents involve betting on elections, which would be illegal under Arizona law even if Kalshi had a license to operate in that state.

The lawsuit suggests that the entire prediction market business plan would be illegal in the state, as they involve wagers on a wide array of subjects that would violate Arizona law. Examples included in the complaint are bets on individual player performance, the 2028 presidential election, and the 2026 primaries and race for Arizona governor.

“Kalshi may brand itself as a ‘prediction market,’ but what it’s actually doing is running an illegal gambling operation and taking bets on Arizona elections, both of which violate Arizona law. No company gets to decide for itself which laws to follow.”

– Kristin A. Mayes, Arizona Attorney General

Kalshi Files Preemptive Countersuit

In a tactic the company has repeated in several states ahead of enforcement action, Kalshi filed its own lawsuit (PDF) against Arizona five days before the criminal charges were brought by the state.

The Kalshi lawsuit claims that Arizona, in trying to enforce state gambling laws, is exceeding its authority by attempting to regulate derivatives trading. The company describes its business model as “offering event contracts for trading” on a federally-regulated exchange.

According to the complaint, Kalshi is a federally designated derivatives exchange, placing it under the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC). The lawsuit acknowledges that it follows a cease-and-desist letter from the Arizona Department of Gaming, which notified the prediction market that enforcement actions were coming.

Mayes called the Kalshi lawsuit an attempt at avoiding accountability by bullying the state.

Sports Betting Addiction Lawsuits

Online sportsbooks and prediction markets like Kalshi have faced a far larger number of civil lawsuits from consumers, who say their tactics are not just illegal in certain states, but can cause serious mental health and economic harm.

Plaintiffs nationwide allege that gambling platforms use aggressive promotions, targeted advertising and app-based engagement tools designed to encourage continuous wagering, often specifically targeting college students and young adults who may be learning to handle their own finances for the first time.

As a result, sports betting addiction lawyers are investigating cases for individuals between the ages of 18 and 30 who suffered significant financial losses after using online sportsbooks, often exceeding $10,000. Platforms named in ongoing investigations include:

To find out whether you qualify for a sports betting lawsuit, submit information about your potential claim for an attorney to review. All cases are handled on a contingency fee basis, meaning you pay nothing unless a settlement is obtained in your case.

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