Kentucky Residents Sue Kalshi Over Gambling Losses

In the latest round of legal maneuvers involving prediction market firms, a group of Kentucky residents has filed a federal class-action lawsuit against Kalshi.

Lawyers filed the class-action suit on Monday. The plaintiffs, who lost money on the platform, claim that event contracts offered by the company are illegal under state gaming laws and promote underage gambling, and other “social ills.”

“Defendants attempt to cleverly disguise these contracts as unique securities and/or commodities purportedly regulated by the Commodities Future Trading Commission (CFTC).

“These event contracts are nothing more than thinly veiled illegal wagers based on the outcome of specific future events,” the lawsuit reads.

New Legal Approach

The lawsuit makes a case that only the Horse Racing and Gaming Commission can regulate gaming in the state. All operators must obtain a license under state law, something the plaintiffs said Kalshi lacks.

“Kalshi believes that it is above Kentucky law, operating what it calls a ‘prediction market’ that allows Kentucky residents to buy and sell ’event contracts’ related to everything from elections to sporting outcomes,” the suit said. “It does this without any attempt to follow Kentucky’s regulations or obtain a license to operate within the law.

“Kalshi takes millions out of Kentucky’s economy with this activity every year, all without registering to do business in Kentucky or paying any taxes to the state.”

Kalshi and other prediction market firms have argued their event contracts are different from traditional sports betting. The CFTC solely regulates them, they claim.

The company has yet to comment on the lawsuit. The industry has also faced lawsuits in state and federal court in other states.

Users Could Seek To Recoup Losses

Prediction market firms potentially face unique repercussions in Kentucky.

Under state gaming law, residents who lose money in illegal gambling operations can also recover their losses. The lawsuit is seeking to do that.

PokerStars was in a similar situation after the company left the US market. The company was dealt a $1.3 billion lawsuit in 2010 citing the law. The state supreme court later affirmed a ruling against the company before Stars ultimately reached a $300 million settlement in 2021.

In other Kalshi news, Ohio gaming regulators recently fined the company $5 million for offering sports contracts. The Massachusetts Supreme Court also questioned whether Kalshi’s sports event contracts are simply wagers better regulated at the state level.

https://www.cardplayer.com/poker-news/1659761-kentucky-residents-sue-kalshi-over-gambling-losses