The Kalshi Class Action: Allegations, Plaintiffs, and State Fights

The Kalshi class action lawsuit is a consolidated federal case in the Southern District of New York accusing the prediction market platform of running an illegal sports gambling operation while marketing itself as a regulated financial exchange. Filed by users who placed wagers on sports-related “event contracts,” the suit alleges that Kalshi violated state gambling laws, misled consumers about who they were trading against, and unjustly enriched itself as retail users lost money to sophisticated institutional market makers.¹²

What the Lawsuit Claims

The core allegation is blunt. Kalshi, the complaint says, is “falsely marketing itself as a ‘prediction market,’ when in reality it is running an illegal sports gambling operation.”² The plaintiffs argue that the “event contracts” Kalshi began offering on sports in January 2025 are wagers by any other name, and that repackaging them as financial instruments does not exempt the company from state gambling law.

The suit brings claims under state gambling statutes, most prominently New York Racing, Pari-Mutuel Wagering and Breeding Law § 1367, together with claims of illegal deceptive activity and unjust enrichment.³ The proposed class covers U.S. residents over 18 who used Kalshi to place sports-related wagers starting in January 2025, when the company expanded into those markets. The plaintiffs seek to recover the wagers they placed, along with costs and attorneys’ fees.

Defendants include Kalshi Inc. and several affiliated entities: Kalshi Klear Inc., Kalshi Klear LLC, Kalshi Trading LLC, and KalshiEX LLC.¹ One of the consolidated cases, Christopher Jennings v. Kalshi Inc., also names Susquehanna International Group and Susquehanna Government Products as defendants alongside the Kalshi entities.⁴

The “Betting Against the House” Allegation

Beyond the gambling-law question, the complaint makes a specific factual accusation about how the platform actually works. Users, the plaintiffs say, were told they were trading peer-to-peer against other retail participants. In practice, they were usually trading against institutional market makers with enormous structural advantages.

Susquehanna International Group, the quantitative trading firm founded by Jeff Yass, is named as Kalshi’s primary institutional market maker and launched a dedicated trading desk for Kalshi event contracts in April 2024.⁵ When retail users buy event contracts, according to the complaint, they “almost always face off against a market maker on the other side of the ledger,” effectively placing wagers “against the house.”⁶

The market makers, the plaintiffs allege, get reduced fees, different position limits, enhanced platform access, dedicated research teams, proprietary statistical models, and superior data and software. The suit describes a “riskless principal transaction,” in which a market maker takes both sides of a contract and extracts a guaranteed profit from the bid-ask spread regardless of the outcome. Together, the plaintiffs argue, these advantages make it “nearly impossible for individual gamblers to profit over time.”⁶

The complaint also points to a conflict inside Kalshi itself. Kalshi Trading LLC, a wholly owned subsidiary of Kalshi Inc., acts as a market maker on the same exchange. Kalshi says its trading arm is a “separate entity” with informational barriers, separate physical locations, and separate servers. The exchange and the trading arm share common board members, however, including CEO Tarek Mansour and COO Luana Lopes Lara, and Kalshi does not publicly disclose Kalshi Trading’s share of volume or whether it is the counterparty on specific trades.⁷

Kalshi has called the allegations “meritless fiction” and maintains it is a peer-to-peer exchange with no house. Co-founder Luana Lopes Lara said Kalshi Trading accounted for less than 6% of the platform’s making volume as of late 2025.⁵

Who Filed and Where the Case Stands

Three separate class actions were filed against Kalshi in late 2025 and early 2026 and then rolled together. The original Pelayo et al. v. Kalshi Inc. et al. was filed on November 26, 2025, in the Southern District of New York, with Crystal Pelayo as lead plaintiff joined by more than a dozen other users.¹⁸⁴

On February 9, 2026, Judge Jennifer L. Rochon consolidated the actions under the caption In re Kalshi Sports Prediction Market Litigation, with Yee as the lead case. The Jennings action was later folded in, and the Pelayo case was administratively terminated to reflect the merger.⁸

The plaintiffs’ leadership structure is made up of Lieff Cabraser Heimann & Bernstein LLP, Tycko & Zavareei LLP, Kaplan Fox & Kilsheimer LLP, Cutter Law P.C., and Alameda Law Group. Key attorneys include David J. Stellings, Wilson M. Dunlavey, and Jacob S. Miller.¹

Kalshi’s opening move has been to try to get the whole case out of court. The company filed a motion to compel arbitration based on the KalshiEX Rulebook and Member Agreement. Under the scheduling order signed by Judge Rochon on March 20, 2026, the plaintiffs’ response to the arbitration motion was due June 4, 2026, and Kalshi’s reply was due June 25, 2026. If the court denies the motion, Kalshi has 45 days to answer the complaint or move to dismiss. No ruling on arbitration has been reported.¹⁸

How the Class Action Fits With the State Gambling Fights

The class action is not the only legal challenge to Kalshi’s sports contracts, and its fate is tied to a bigger question moving through other courts: whether federal regulation of Kalshi by the Commodity Futures Trading Commission preempts state gambling law entirely.

Kalshi’s central defense across all of these fights is that its event contracts are “swaps” under the Commodity Exchange Act, traded on a CFTC-licensed Designated Contract Market, so state gambling laws cannot reach them. On April 6, 2026, the Third Circuit accepted that theory in a 2-1 decision affirming an injunction that blocked New Jersey from enforcing its gambling laws against Kalshi. The majority held that the CEA occupies the field of trading on designated contract markets and that sporting events carry “financial, economic, or commercial consequence” through TV networks, sponsors, and advertisers, bringing the contracts within the swap definition.⁹¹⁰

Judge Jane Roth dissented, writing that Kalshi’s offerings are “virtually indistinguishable” from traditional sports betting and that the regulatory framing amounts to “performative sleight” to avoid state oversight.¹¹¹²¹³ The Ninth Circuit heard consolidated oral arguments involving Kalshi, Robinhood, and Crypto.com on April 16, 2026, with no ruling reported.¹⁴

Why this matters for the class action: the plaintiffs’ claims rest heavily on state gambling law. If federal courts continue to conclude that the Commodity Exchange Act preempts state gambling regulation of Kalshi’s contracts, the class action’s core legal theory weakens. If the split deepens and the Supreme Court sides with the states, the theory strengthens. Stanford Law professor Joseph Grundfest has said a circuit split is expected and predicted the question will reach the Supreme Court.¹⁵

A Separate Class Action Over the Khamenei Market

One point of confusion worth flagging: not every class action against Kalshi is this one. In March 2026, a separate proposed class action, Risch v. KalshiEX LLC (Case No. 2:26-cv-02390), was filed in the Central District of California over Kalshi’s “Ali Khamenei out as Supreme Leader?” market. That case alleges breach of contract and California consumer protection violations tied to Kalshi’s “death carveout” policy, which the company invoked to deny full payouts after reports of Khamenei’s death during U.S. and Israeli airstrikes on February 28, 2026.¹⁶ Kalshi later agreed to reimburse users for fees and net losses in the market, at a cost of $2.2 million.¹⁷ A related suit was filed in New York.¹⁸ Those cases are separate from the consolidated sports prediction market litigation described above and involve different plaintiffs, different theories, and different courts.

What to Watch Next

The next milestone in the consolidated case is Judge Rochon’s ruling on Kalshi’s motion to compel arbitration. If arbitration is compelled, the class claims will move out of court and into individual proceedings governed by Kalshi’s Member Agreement. If it is denied, the case moves to a motion to dismiss, where the federal preemption question that has divided the appellate courts will land directly on the class action’s state-law theories. Users who placed sports wagers on Kalshi from January 2025 onward fall within the proposed class definition as it currently stands.³

1
CourtListener. Pelayo v. Kalshi Inc.
2
Law360. Kalshi Users Bring Class Action Over Illegal Sports Gambling
3
ClassAction.org. Pelayo et al. v. Kalshi Inc. et al. Complaint
4
CourtListener. Christopher Jennings v. Kalshi Inc.
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iGaming Business. Class Action Suit Against Kalshi Market Makers
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CCH. Kalshi Complaint
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Sportico. Kalshi Trading Exchange Peer House
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CourtListener. In re Kalshi Sports Prediction Market Litigation
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U.S. Court of Appeals for the Third Circuit. KalshiEX LLC v. Flaherty, No. 25-1922
10
Jurist. US Federal Court Rules Platform Kalshi Can Continue Offering Sport Contracts During Litigation
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Jurist. US Federal Court Rules Platform Kalshi Can Continue Offering Event Contracts During Litigation
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Womble Bond Dickinson. Update Prediction Markets
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Mass.gov. AG Campbell Secures Court Order That Will Block Kalshi From Offering Unlawful Sports Wagers in Massachusetts
14
Law360. Ninth Circuit Judge Rips Sophistry by Online Prediction Markets
15
Stanford Law School. Prediction Markets Are Surging Heres What You Need to Know
16
Bloomberg Law. Kalshi Sued Over Death Carveout in Iran Leader Prediction Market
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Forbes. Kalshi Death Bet Lawsuit Sparks Push to Ban Assassination Markets
18
New York Law Journal. Kalshi Faces Legal Fire in NY Over Prediction Market for Death of Iranian Leader