In a period rife with litigation involving prediction markets, a group of plaintiffs filed a federal lawsuit against Kalshi last week alleging that the company misled customers on its market-making practices.
On the eve of Thanksgiving, plaintiffs from six states filed the civil lawsuit against Kalshi in New York claiming that the prediction market platform violated state gambling laws, engaged in illegal deceptive activity and unjustly enriched itself at the expense of its customers. Attorneys for the plaintiffs filed the suit one day after a Nevada federal judge lifted a preliminary injunction that previously enabled Kalshi to continue operations in the state. Kalshi indicated that it plans to appeal that judge’s decision.
Kalshi, which handled more than $1 billion in NFL event contracts in the first month of the 2025 season, described the class-action lawsuit as “meritless fiction”. In a statement released on 26 November, Kalshi wrote: “This lawsuit demonstrates many fundamental misunderstandings about how federally regulated DCMs (designated contract markets) operate.”
The lawsuit appears to be the first of a class-action variety against a prediction market, an asset class that has grown rapidly over the last six months. The suit may trigger further debate on the role of market makers throughout the exchange trading ecosystem. Market makers are typically defined as firms that help facilitate the buying and selling of securities by providing liquidity.
Plaintiffs: Market makers benefit at expense of consumers
In April 2024, Susquehanna International Group (SIG) announced a partnership with Kalshi, under which it became the first institutional market maker to launch a trading desk dedicated specifically to event contracts.
Founded by billionaire Jeff Yass, SIG is a global quantitative trading firm that serves as a market maker for a wide range of trading products, particularly options and exchange-traded funds (ETFs). While Kalshi partners with other market makers beyond SIG, the prediction market has not disclosed the names of the other companies. SIG is widely viewed as Kalshi’s primary market maker.
According to the lawsuit, market makers benefit from their “unique contractual and technological integration” with prediction markets. The relationship, the plaintiffs contend, provides the market makers with unfair advantages such as reduced fees, differing position limits and enhanced access to the markets. Moreover, the advantages “greatly reduce” the market makers’ financial exposure, the plaintiffs allege.
“As a result, individual consumers hardly stand a chance, all the while thinking they are just betting against other consumers,” the lawsuit states.
A market maker essentially serves as a counterparty to ensure there is enough liquidity on the platform. For instance, a buy contract on the Detroit Lions to defeat the Dallas Cowboys this Thursday is priced at 61 cents on Kalshi (a payout of $164 on a $100 trade). For every trade, a counterparty must take the other side. At one point on Tuesday morning, there were 138,689 contracts on the Lions at 61 cents for $84,600. However, a Kalshi user does not know if the counterparty is an institutional market maker such as SIG or another retail consumer.
Kalshi co-founder: An attempt to discredit prediction markets
Kalshi co-founder Luana Lopes Lara took exception with the lawsuit in a lengthy post on her X account. She called the allegations false, adding that any company with a large consumer base deals with lawsuits “that have no merit”. In addressing the market maker allegations, she stated that Kalshi is a peer-to-peer exchange that doesn’t have “a house”.
Along with SIG, Kalshi operates its own market maker, an affiliate called Kalshi Trading. The offering is a common practice within the industry, Lopes Lara said, emphasising that many financial exchanges have a similar setup. Last month, Kalshi Trading represented less than 6% of the platform’s making volume, she indicated.
She also criticised the author of a post on X who wrote that Kalshi misled users into adopting the belief that they wagered against other bettors, when in fact they wagered against the company. The author, who goes by the username @rawsalerts, received more than 460,000 views with the post.
“It’s not surprising that entrenched interests are seeding false narratives to discredit prediction markets: this is very similar to what the banks did to discredit the crypto industry (a good reminder not to blindly trust what you read online),” Lopes Lara wrote.
Alfonso Straffon, a prominent financial analyst in the sports betting space, wrote a letter to the US Commodity Futures Trading Commission ahead of a proposed roundtable on prediction markets. In a six-page letter, Straffon explained why betting markets on sports are driven by the same kind of economic forces and actors found in any financial market.
“In the business of sports betting, the bookmaker is no different than a market maker as defined in the world of financial markets, including those market makers authorised by the CFTC to provide liquidity on designated contract markets such as Kalshi,” he wrote.
Upcoming cases
Represented by three attorneys from law firm Lieff Cabraser Heimann & Bernstein LLP, the plaintiffs filed last week’s lawsuit in US District Court for the Southern District of New York. After the New York State Gaming Commission sent Kalshi a cease-and-desist order from operating in the state, the company filed a lawsuit in October seeking to block the state from enforcing the order.
Besides New York, at least half a dozen other states have filed comparable orders against the prediction market site. The list includes New Jersey, Illinois, Nevada and Ohio, which all rank among the largest states nationwide in sports betting handle.
In September, Massachusetts Attorney General Andrea Campbell filed a suit against Kalshi alleging that it is operating in the state as an illegal sports betting platform. On 9 December, a court in Massachusetts will hold a hearing addressing the state’s preliminary injunction against Kalshi and the company’s motion to dismiss the case.
The new lawsuit comes as the nation’s top sportsbooks prepare for the debut of their own prediction markets. Both DraftKings and FanDuel plan to roll out prediction market platforms in the coming months. Soon after, they are expected to be joined by Fanatics, Coinbase and US President Donald Trump’s Truth Social platform. Kalshi is facing further pressure from news last week that SIG and Robinhood will form a joint venture to launch their own prediction market exchange.
Matt Rybaltowski
Matt is primarily responsible for long-form feature coverage on complex sports betting scandals. He also provides coverage on finance, M&A and other technological developments.
Plaintiffs claim market makers place customers at a disadvantage, charges that Kalshi contend are meritless.