As so-called “death markets” on prediction markets continue to stir controversy, Kalshi is facing a class action lawsuit over how it settled its “Ali Khamenei out as Supreme Leader?” contract after Iran’s supreme leader was killed in joint U.S.-Israeli airstrikes on February 28.
In the lawsuit, the plaintiffs allege Kalshi shortchanged users who believed the market should have paid out on “yes” after Khamenei’s death.
The complaint, filed on March 5 in U.S. District Court for the Central District of California, accuses Kalshi and related entities of breach of contract, fraud, negligent misrepresentation, unjust enrichment, and violations of California consumer protection law.
The named plaintiffs representing the class are Adam Risch and Yonatan Gliksman, who claim the market rules listed for the contract told traders that “if Ali Khamenei leaves office before March 1, 2026, then the market resolves to yes.”
However, after Khamenei’s death was announced, Kalshi invoked a “death carveout” and settled contracts based on the last traded price before his death. The suit alleges that traders who held “yes” positions received only partial payouts rather than the full contract value to which they were entitled.
The lawsuit argues Kalshi did the opposite of what it promised: “This case represents the poster child of unfair competition, deceptive corporate behavior, and consumer fraud: a company that lures consumers in with clear promises, then pulls the rug out from under them when those promises become inconvenient.”
The plaintiffs are seeking damages, restitution, disgorgement, punitive damages, and injunctive relief requiring clearer disclosure of material market terms.
Complaint: Traders Were Misled on What ‘Leaves Office’ Meant
The lawsuit boils down to allegations that Kalshi’s user-facing summary was clear and unconditional, while the company hid its death-related summary in fine print or didn’t surface it prominently enough for ordinary users to understand the contract’s limitations before trading.
The plaintiffs allege that any reasonable consumer would’ve understood that “leaves office” includes death when the subject is an 85-year-old leader, especially in the context of a period of escalating military conflict.
“They offered a market on whether an 85-year-old autocratic leader would be removed from power—where the single most foreseeable mechanism for his departure was his death—and then invoked a purported technicality to avoid honoring their promises when that foreseeable event occurred,” the lawsuit says.
The complaint also takes issue with how Kalshi promoted the Khamenei market in the hours after it became clear that it was likely Khamenei had died in the U.S.-Israeli military action. In the lawsuit, the plaintiffs allege the prediction market continued to accept trades on February 28, even as reports of the strikes spread, and that the company promoted the market on social media, knowing its internal settlement method would not deliver full payouts to “yes” holders.
The lawsuit points to emails Kalshi allegedly sent to users, where the exchange admitted, “We understand that many users did not have a full understanding of the rules for this market. It’s a good reminder that we can always do more to improve our UX and how we surface the rules,” which the plaintiffs cite as proof that the company had acted in bad faith.
In a post to X on March 1, Kalshi CEO Tarek Mansour claimed that the exchange doesn’t list death markets. As a prediction market regulated by the Commodity Futures Trading Commission (CFTC) under the Commodity Exchange Act, Kalshi cannot list contracts tied to assassinations, terrorism, or war.
It appears Kalshi has put the death carveout in place as a compliance tool to prevent its markets, such as the one that allowed traders to wager on Khamenei, from becoming death markets. However, in doing so, the plaintiffs argue that the exchange fundamentally misled traders by burying this “fine-print mechanism” in its formal terms, while promoting the market as a straightforward binary contract.
The plaintiffs seek to represent a nationwide class of users who held “yes” positions in the Khamenei market when trading was halted, including a subclass of traders who bought in before February 28 and another subclass of traders who entered on the day of the strikes. The complaint says the market generated about $54 million in trading volume.
Kalshi Filed New Death Rule With CFTC After Backlash
Plaintiffs filed the lawsuit just days after Kalshi notified the CFTC that it was amending Rule 6.3 to formalize how markets settle when a living person dies before a contract expires.
The new death rule that is set to go into effect on March 17 gives the exchange discretion to settle contracts at the last traded price before a subject’s death or, in some cases, at a fair price from before the surrounding circumstances became public.
Kalshi claims its decision on the Khamenei markets is consistent with the company’s broad policy of not letting users profit directly from someone’s death. Responding to the uproar on X, Mansour said, “We don’t list markets directly tied to death. When there are markets where potential outcomes involve death, we design the rules to prevent people from profiting from death.”
As this class action lawsuit shows, Kalshi’s explanation has done little to satisfy traders, many of whom have argued that the market functioned as a proxy for just that type of event. Over the past week, the dispute has turned into one of the most high-profile test cases for how prediction markets should handle war, geopolitics, and outcomes linked to mortality.
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As so-called “death markets” on prediction markets continue to stir controversy, Kalshi is facing a class action lawsuit over how it settled its “Ali Khamenei out as Supreme Leader?” contract after Iran’s supreme leader was killed in joint U.S.-Israeli airstrikes on February 28. In the lawsuit, the plaintiffs allege Kalshi shortchanged users who believed the
The post Traders File Class Action Lawsuit Against Kalshi Over Khamenei Market ‘Death Carveout’ appeared first on CasinoBeats.