In early December 2025, federally regulated derivatives exchange KalshiEX LLC filed suit in the U.S. District Court for the District of Connecticut challenging a cease-and-desist order issued by the Connecticut Department of Consumer Protection (DCP) directing Kalshi to halt operations in the state. The DCP contends that Kalshi, along with platforms such as Robinhood and Crypto.com, operates an unlicensed and illegal sports betting platform in violation of Connecticut law. According to the agency, Kalshi’s sports event contracts fall squarely within the state’s definition of sports wagering and expose consumers to risk because they operate outside Connecticut’s regulated gaming framework, lack required integrity controls, and are not subject to consumer protection oversight. Connecticut officials have emphasized that “a prediction market wager is not an investment,” and that Kalshi’s platform offers no recourse for consumers under state law if disputes arise.

Kalshi strongly disagrees with this characterization. In its complaint, Kalshi argues that it is a Commodity Futures Trading Commission (CFTC)-designated contract market subject to the exclusive jurisdiction of the CFTC under the Commodity Exchange Act, and that the sports-related event contracts it offers are federally regulated derivatives — not a prohibited form of gambling. Kalshi asserts that Connecticut’s enforcement action is both field-preempted and conflict-preempted by federal law, intruding into a regulatory regime Congress reserved solely to the CFTC. The company further alleges that being forced to geo-fence Connecticut users or terminate contracts would cause immediate and irreparable harm, jeopardize existing customer relationships, and undermine confidence in a federally approved exchange. Kalshi seeks declaratory and injunctive relief barring Connecticut from enforcing its gaming laws against the platform.

This lawsuit in Connecticut is the latest chapter in a rapidly expanding series of legal disputes surrounding Kalshi’s prediction market model. The attorney general of Massachusetts sued Kalshi in state court in September, alleging its sports event contracts constitute illegal sports betting requiring licensure under state law, a case that remains pending following remand from federal court. In Nevada, Kalshi initially secured a preliminary injunction preventing enforcement by the Nevada Gaming Control Board, but that injunction was later dissolved. Kalshi has indicated that it intends to appeal that ruling to the Ninth Circuit. In California, several Native American tribes unsuccessfully sought a preliminary injunction, arguing Kalshi’s markets violated the Indian Gaming Regulatory Act and state gaming exclusivity. The federal court denied relief, citing in part the Unlawful Internet Gambling Enforcement Act’s carve-out for CFTC-regulated exchanges. Separately, Kalshi faces a nationwide class action brought by users alleging the platform operates as an illegal, unlicensed sportsbook and unjustly profits from consumer losses. Across these matters, the central legal issue remains consistent: whether state gambling laws can reach federally regulated prediction markets offering contracts tied to sports outcomes.

Why It Matters

For business and legal professionals in the state-legal gaming and sports betting ecosystem, Kalshi’s ongoing litigation presents a significant regulatory inflection point. At stake is a determination of whether federally regulated prediction markets can offer sports-related event contracts nationwide without complying with state sports wagering regimes, or whether states retain authority to prohibit or license these products notwithstanding CFTC oversight. Rulings broadly favoring Kalshi could introduce federally regulated competitors operating outside traditional gaming frameworks, potentially challenging existing sportsbooks, tribal exclusivity arrangements, and state tax models. Conversely, sustained state enforcement victories would reaffirm state primacy over sports wagering and limit the expansion of prediction markets into domains historically regulated by gaming authorities. Until courts, regulators, or Congress provide clearer guidance, uncertainty will persist, underscoring the need for careful regulatory risk assessment for any business operating at the intersection of derivatives trading and state-regulated gaming.