Washington sues Kalshi as states ramp up legal pressure against prediction markets

The Washington state attorney general alleged Kalshi offers "gambling products" products dressed up as prediction markets in a lawsuit Friday.

What to know:

• Washington state has become the latest to sue prediction market provider Kalshi, alleging the company violated state regulations.
• The filing came a week after Nevada won a temporary restraining order ordering Kalshi to stop offering sports, election and entertainment products in that state.
• Nevada also secured a preliminary injunction against Coinbase's prediction markets, which offered sports, election and entertainment bets.

The state of Washington has become the latest to sue a prediction markets provider, after alleging Friday that Kalshi had violated state gambling laws through its products.

According to the complaint, Washington has a tightly-regulated gambling market, including a ban on online gambling, but Kalshi's products bypass these regulations.

"Kalshi’s website and app show consumers a range of events that they can bet on and the odds for those various events, which dictate how much the bettor will be paid out if the event occurs," a press release from the state said. "This is exactly how sportsbooks and other gambling operations function. Kalshi advertises that they allow consumers to 'bet on anything' by simply calling their service a 'prediction market' rather than 'gambling.'"

The lawsuit said Kalshi's advertisements referred to "legal betting," and alleged the company's activities met state definitions of "gambling," "professional gambling," "bookmaking" and other key state provisions. It also included a provision alleging that Kalshi's products promoted gambling addiction and targeted college students in particular.

Kalshi filed to move the case to federal court, saying it was already litigating these issues in other federal courts and that it received "no warning or dialogue" from Washington prior to the lawsuit.

Washington's filing continues a growing state backlash against prediction market providers. Prediction market providers and their proponents, including Commodity Futures Trading Commission Chair Mike Selig, argue that these companies offer derivatives contracts that are appropriately regulated at the federal level. States have argued that these companies are offering gambling products dressed up as something else and should be subject to state gambling laws as a result.

While both prediction market providers and states have had some initial legal victories, this argument is likely to wind up before the U.S. Supreme Court, legal experts have told CoinDesk.

Nevada actions

The suit came a week after Nevada won an appeals court victory allowing it to file for a temporary restraining order against Kalshi, forcing the company to remove its sports, entertainment and election contracts from the state for at least two weeks. A hearing will be held at the end of those two weeks on Friday, April 3, at which a state judge will decide whether to extend the restriction.

Trade publication Gambling Insider reported on Friday that Kalshi's Nevada users were still able to use the platform after the temporary restraining order went into effect.

Nevada also secured a preliminary injunction against Coinbase, requiring it to continue a pause in its prediction market offerings in the state in an order dated Thursday, March 26, following an initial temporary restraining order issued in early February.

Under Thursday's order, Nevada District Judge for the First Judicial District Court Kristin Luis wrote that Coinbase did not dispute it offered "'event-based contracts' that relate to sporting and other events, including college basketball games, college and professional football games and elections," which meet the definition of "sports pools" defined under Nevada law.

Coinbase is partnered with Kalshi, the judge noted. Like the Kalshi order, this one is ordering Coinbase not to offer sports, election or entertainment contracts in Nevada, at least until a broader court case is resolved.

The judge gave Coinbase 60 days to "make technological enhancements" to comply with the order.

Nevada and Washington's federal district courts are both part of the Ninth Circuit Court of Appeals.

Read more: Kalshi secures license to offer margin trading to institutional investors

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