Kentucky Attorney General Russell Coleman has filed suit against prediction market operators KalshiEx LLC and Polymarket, as well as sweepstakes casino group VGW Holdings, alleging all three are conducting illegal gambling operations accessible to state residents – an action that is notable both for its multi-operator scope and for its pairing of CFTC-regulated event-contract platforms with a sweepstakes model that has historically occupied a distinct legal category under state consumer protection and gambling statutes.
The complaints against Kalshi and Polymarket allege the platforms function as unlicensed sportsbooks, permitting Kentucky residents to place wagers on game outcomes, spreads, totals, parlays, proposition bets, and player statistics – a menu that, Coleman’s office argues, mirrors regulated sports betting product design rather than financial derivatives trading. Kentucky asserts that sports betting constitutes the majority of Kalshi’s trading volume, a characterisation that directly undercuts the platform’s positioning as a broad-based event exchange and forms the backbone of the AG’s theory that CFTC registration does not insulate the operator from state gambling law. Coinbase is named as an affiliate in the Kalshi complaint, signalling that Coleman’s office is prepared to extend liability to financial intermediaries connected to prediction market infrastructure.
The VGW action targets the company’s Chumba Casino and Global Poker products, which operate on a dual-chip sweepstakes structure – virtual currency used in place of direct cash wagers – that VGW argues has functioned lawfully in the United States for more than a decade under the no-purchase-necessary framework. Kentucky alleges that structure still constitutes an unlawful sweepstakes casino reachable under state law, regardless of the virtual currency mechanism. VGW said in a statement that it “respectfully but completely disagreed” with Coleman’s characterisation and would “vigorously defend” itself, framing the suit as a misapplication of gambling statutes to a product category that has withstood legal scrutiny in other jurisdictions.
On the remedies side, the complaints invoke the Kentucky Consumer Protection Act, seeking civil penalties of up to $2,000 per violation – rising to $10,000 per violation where the affected user is over 60 years old – as well as actual and punitive damages under the state’s Loss Recovery Act and injunctive relief halting the challenged product offerings to Kentucky residents. DiCello Levitt has been retained as outside counsel to prosecute the Kalshi and Polymarket matters, a firm specialising in complex litigation, which suggests Coleman’s office intends to press the suits through discovery and into substantive merits arguments rather than treating the filings as a regulatory warning shot.
The action arrives days after New Mexico Attorney General Raúl Torrez filed a parallel suit against Kalshi alleging illegal sports betting under a 1953 state statute, and the two filings together represent what specialised gaming press have described as the most aggressive direct legal campaign yet mounted by state AGs against prediction market operators. Kentucky’s enforcement posture is further complicated by the fact that the state recently imposed a 14.25% tax on prediction market activity, prompting a coalition that includes Kalshi and Crypto.com to sue Coleman over that levy – meaning the AG and the prediction market operators are now simultaneously plaintiffs and defendants in overlapping Kentucky proceedings. Kalshi’s regulatory exposure in state courts is not confined to the south-central region: the Nevada Gaming Control Board has separately moved to hold KalshiEx LLC in contempt for alleged geofencing failures under a state court injunction, while a Nevada district court has already issued a preliminary injunction blocking Polymarket from operating in the state.
All three operators have indicated they will contest the suits, making early motions to dismiss or to limit injunctive relief the immediate procedural focus. Kalshi and Polymarket are expected to advance CFTC preemption arguments – the position that registration as a designated contract market under the Commodity Exchange Act displaces state gambling authority – though the traction of that defence in state court, as opposed to federal court where removal would place it, is an open procedural question. Polymarket’s federal regulatory standing is itself contested: the platform operates under a CFTC consent order that restricts its U.S. activity, a posture that complicates any clean preemption claim built on the authority of federal registration.
The open question enforcement observers are now tracking is whether a state court will sustain jurisdiction over a CFTC-registered platform on a state gambling theory – and whether Kentucky’s decision to place VGW in the same action as Kalshi and Polymarket signals a deliberate broadening of state illegal gambling doctrine to reach the sweepstakes model, a classification that, if upheld, would carry implications well beyond these three defendants.
Source: @WALLACHLEGAL on X
Petra Vanhoof has spent the better part of a decade following the shifting tides of gambling regulation across Europe and beyond. She came up through the compliance side of the industry before pivoting to writing, which gives her a grounded, no-nonsense perspective on the rules, loopholes, and political maneuvering that shape how operators actually do business. She is particularly drawn to the gap between what regulators say and what the market ends up doing in response.