HELENA — An increasingly popular online prediction market has filed suit against Montana Attorney General Austin Knudsen, seeking to stop his office from enforcing state gambling laws against them.
The company Kalshi has filed a case in federal court, arguing that the state has no authority to regulate their operations.
(Read Kalshi's full complaint:)
Kalshi offers “event contracts,” where users buy a contract based on whether a predicted future event will or will not happen by a set time. If it does happen, users who bought “yes” contracts are paid out, and if it doesn’t, those who bought “no” contracts are paid out. Before the final resolution, the value of the contracts can vary based on the market, and users can sell them early based on that value.
Kalshi’s contracts cover everything from business and economic indicators to election results and other news events to sports. As the company has received more attention, it has also faced scrutiny from some states that consider its model too close to gambling. Kalshi has maintained it’s not the same because users’ contracts are financial “swaps” with other traders, rather than a bet against the market itself.
“Because traders do not take a position against the exchange itself, traders’ ability to hedge risk requires counterparties willing to assume risk in the hope of seeing a return,” the company’s attorneys said in their complaint.
Last year, an attorney representing the Montana Department of Justice’s Gambling Control Division sent Kalshi a cease-and-desist letter, saying that they had found probable cause that the company’s operations were gambling, “because participants risk money or other things of value for a gain that is contingent in whole or in part upon lot, chance, or the operation of a gambling enterprise.” They asked the company to stop offering event contracts in the state, saying they were seeking “voluntary compliance.”
(Read the Montana DOJ's cease-and-desist letter:)
Kalshi argues their operations are regulated by the federal Commodity Futures Trading Commission, like other financial markets, and that federal law overrides any attempts by states to implement additional restrictions.
“One of Congress’s avowed goals in creating the CFTC was to avoid the ‘chaos’ that would result from subjecting exchanges to a patchwork of 50 different—and potentially conflicting—state law,” the company’s attorneys wrote in their federal complaint.
In the complaint, attorneys said Kalshi believed it had reached an agreement with the state to delay any enforcement while a federal appeals court hears arguments in a similar case centered on Kalshi’s operations in Nevada. However, they said the state sent another cease-and-desist letter last week, so they filed this action seeking to prevent Montana regulators from taking any enforcement action.
In the Nevada case, a judge barred Kalshi from offering contracts on sports. However, an appeals court ruled in a separate case last week that New Jersey did not have the authority to regulate Kalshi.
In addition, the CFTC has announced lawsuits of its own against states that sought to regulate prediction markets.
MTN reached out to Kalshi’s media contact, but as of Tuesday evening had not received a response.
A spokesperson for Knudsen’s office told MTN Tuesday that they were aware of Kalshi’s lawsuit but had not yet been officially served.
