Key Highlights
- Kalshi has filed a lawsuit against Iowa Attorney General Brenna Bird and the Iowa Racing and Gaming Commission claiming federal law shields its event contracts from state enforcement actions, claiming a “substantial risk” of enforcement action against its federally regulated event contracts.
- The suit was triggered after a meeting with Bird’s office turned confrontational, with Iowa’s Solicitor General questioning whether Kalshi’s products violated state law.
- Ohio and Connecticut courts rejected Kalshi’s preemption claims, highlighting ongoing state conflicts.
- Markets on Kalshi and Polymarket surged amid geopolitical tensions, raising regulatory concerns.
Prediction market platform Kalshi launched a federal lawsuit against Iowa’s Attorney General Brenna Bird on Wednesday, claiming a “substantial risk” of enforcement action against its event contracts. The company also named the Iowa Racing and Gaming Commission and its board as defendants.
Kalshi said a meeting with Bird unexpectedly turned confrontational, with the state’s Solicitor General challenging whether the platform’s federally regulated offerings violated Iowa law.
Kalshi’s lawsuit shows the company trying to protect itself under federal law. According to Kalshi, a representative for the Attorney General wrote, “We will not give any assurances about potential future enforcement.” Kalshi says that because it is a designated contract market, the Commodity Futures Trading Commission (CFTC) has the sole authority over its contracts, and Iowa cannot enforce state rules on them.
Legal battles across states
This lawsuit is part of Kalshi’s broader strategy to defend its operations in multiple U.S. states. Previously, an Ohio federal court denied Kalshi a preliminary injunction to block state regulators from enforcing sports gambling laws. Chief Judge Sarah Morrison ruled that Kalshi failed to show Ohio’s sports-event contracts fell under CFTC-exclusive jurisdiction. “Kalshi fails to establish that Congress intended the CEA to preempt state laws on sports gambling,” she wrote.
Similarly, Kalshi challenged Connecticut regulators after receiving a cease-and-desist order for offering contracts tied to elections and other events. The company argued that federal derivatives regulation, approved by the CFTC in 2024, preempts state gambling laws. “Kalshi’s event contracts are not ‘gambling’ under any reasonable definition of the term,” the filing stated.
Controversy over high-risk markets
Prediction markets have recently drawn attention amid geopolitical tensions. As reports circulated that Iran’s Supreme Leader Ali Khamenei may have died, trading surged on Kalshi and Polymarket. On Polymarket, contracts linked to potential U.S. military action against Iran exceeded $529 million in volume. Analysts noted unusual activity, including large bets from newly created wallets.
Kalshi took a different approach with similar contracts. Its market had a “death carveout,” which meant the contract wouldn’t automatically settle if a leader left office because of death. Trading on this market reached $50 million, and the platform paused trading after explaining the rules. Some traders criticized the move, expecting the contracts to settle fully.
At the same time, U.S. lawmakers are keeping a close eye on prediction markets. Senator Adam Schiff proposed the DEATH BETS Act to ban markets tied to terrorism, war, assassination, and death. Senator Richard Blumenthal also introduced the Prediction Markets Security and Integrity Act to prevent fraud. However, with Republicans controlling the Senate, any immediate changes to the law seem unlikely.
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