Kalshi Files Lawsuit, Preliminary Injunction Versus Maryland

Things are warming up in the battle in between state regulatory agencies and forecast market operators.


The current shot across the bow came Monday, when forecast market company KalshiEX LLC (Kalshi) filed a motion in the United States District Court for the District of Maryland Northern Division against the Maryland Lottery and Gaming Control Commission (MLGCC).


Key Insights


- Kalshi filed comparable motions versus New Jersey and Nevada.
- An essential issue is whether sports event agreements used by forecast markets are state regulated sports wagers or federally managed futures agreements.


Kalshi's most current suit is in action to Maryland's recent cease-and-desist order provided previously this month. Maryland issued cease-and-desist orders to three prediction market operators, however Kalshi is the just one to respond with a claim.


In its cease-and-desist order, Maryland Lottery and Gaming Control agency director John Martin wrote "Kalshi is running in Maryland and is using and conducting what is, in truth, wagering on sporting events. However, Kalshi does not hold a sports betting license issued by the Commission, its wagers have actually not been authorized by the Commission, and it is not otherwise authorized under Maryland law to offer wagers on sporting events."


Kalshi argues in its fit that the MLGCC is "unconstitutionally threatening to restrict trading of Plaintiff KalshiEX LLC's (Kalshi) sports-event agreements in Maryland, even though those contracts are licensed by the Commodity Futures Trading Commission (CFTC) - the federal firm that Congress endowed with 'exclusive jurisdiction' to manage trading on federally designated exchanges like Kalshi."


Potential face-off could challenge 1961 federal sports betting law


Two problems that might complicate Kalshi's argument are the 1961 Federal Wire Act and the CFTC's own rules. The Federal Wire Act forbids interstate sports betting, which is one reason that sports betting is legislated and managed intrastate. Meanwhile, CFTC Rule 40.11(a)( 1) forbids any event agreement "that includes, relates to, or referrals terrorism, assassination, war, video gaming, or an activity that is illegal under any State or Federal law ..."


At least six states have sent out cease-and desist orders to Kalshi. Up until now, Kalshi has actually countered with lawsuits versus New Jersey, Nevada and Maryland. Although Ohio regulators anticipate they could be next. Kalshi won the initial round in its Nevada match, gaining a temporary remedy for the state's cease-and-desist order.


New Jersey, however, might offer Kalshi more trouble. The Garden State has already filed an opposition to Kalshi's motion. New Jersey Chief Law Officer Matthew Platkin provided a choice to the court.


"Like lots of other States, New Jersey has regulated betting for over 125 years. Plaintiff KalshiEX, LLC thinks it is exempt from those laws merely because it offers sports wagers in a new format (called event agreements) on a market designated by the Commodity Futures Trading Commission (CFTC). Kalshi is wrong," he wrote. "There is no doubt that if the Commodity Exchange Act (CEA) uses to Kalshi's sports wagers, Kalshi needs to adhere to the CEA in order to list them on a CFTC-designated market. But it can refrain from doing so in violation of state law."


Kalshi, however, has some powerful buddies in the brand-new presidential administration. In January, Kalshi called Donald Trump Jr. as a "strategic advisor." In February, President Trump chose Brian to lead the CFTC. Quintenz was a former Kalshi board member.