Kalshi, a regulated financial exchange and prediction market platform where users can trade on the outcome of real-world events, is seeking injunctive relief from cease-and-desist orders issued by the Nevada and New Jersey gaming boards.
The Nevada Gaming Control Board (NGCB) sent a cease-and-desist notice to Kalshi in early March, ordering the company to stop offering its sports event contracts in the state by March 14.
Last week, the New Jersey Division of Gaming Enforcement (DGE) also issued a cease-and-desist letter to Kalshi and Robinhood on March 27, informing the companies that they have until March 29, to remove their sports event contract markets from the Garden State.
Nevada Lawsuit Alleges NGCB Violated CEA
Although Robinhood complied with the notice, Kalshi did not and is instead fighting back against both states.
The lawsuit against Nevada alleges that the NGCB violated the Commodity Exchange Act (CEA). While the prediction market company is federally regulated by the Commodity Futures Trading Commission (CFTC), it is not monitored at the state level.
“The Commodity Exchange Act explicitly and unambiguously delegates the ‘exclusive’ power to oversee, approve, and regulate futures trading on registered exchanges to a federal agency – the CFTC,” Kalshi said in the lawsuit.
In addition, the lawsuit claims that if individual states are allowed to impose their own restrictions, it would create the type of regulatory dilemma Congress wanted to prevent from the get-go.
“Kalshi is a federally-designated and approved derivatives exchange, subject to the CFTC’s exclusive jurisdiction. It offers consumers the chance to invest in many types of event contracts, including, as relevant here, sports-outcome contracts,” Gurbir S. Grewal of Milbank LLP, counsel for Kalshi, wrote in the lawsuit against the DGE.
“These contracts are subject to extensive oversight by the CFTC, and – critically – they are lawful under federal law. Two months ago, the CFTC allowed Kalshi’s sports-outcome contracts to take effect without review.”
Kalshi, Robinhood Potentially Violated New Jersey’s Constitution
Both Kalshi and Robinhood also allegedly violated New Jersey’s constitution by offering event trading on college sports. The existing laws in the state prohibit betting on college teams.
Kalshi Co-Founder and CEO Tarek Mansour recently took to social media to defend the company.
“While they are not our regulators, both states have issued cease and desist orders that fundamentally misunderstand prediction markets and undermine the foundation of U.S. financial markets, which are regulated by the federal government. We have made every effort to engage proactively with both Nevada and New Jersey and try to educate them about prediction markets, how they are regulated, and how critical they are… but our words fell on deaf ears,” he wrote.
Regardless of location, state law explicitly prohibits betting on college sports events held in New Jersey or any event featuring a New Jersey-based college team.
While federal betting laws have changed over the years, it’s important to note that state governments have rights of their own as well. That should go without saying.
Jose is an iGaming analyst with wide experience within the sector. He has been working as content writer on casino and betting websites for more than 10 years, contributing on websites like Pokerlistings, Casinobee, Betpack among others, sharing his insights and perspective for the future ofthe iGaming market.
