Lawsuit Targets Kalshi’s Trading Model

A group of plaintiffs from six states has filed a federal class-action lawsuit against prediction market operator Kalshi, accusing the company of misleading customers about how its markets function and giving institutional market makers an unfair advantage. Filed in the Southern District of New York on the eve of Thanksgiving, the suit argues that Kalshi violated state gambling laws, engaged in deceptive business practices and benefited financially at the expense of retail users. The complaint arrived one day after a Nevada federal judge lifted a preliminary injunction that had allowed Kalshi to continue operating in the state. Kalshi has said it plans to appeal that decision.

The company, which processed more than $1 billion in NFL event contracts during the first month of the 2025 season, dismissed the lawsuit as “meritless fiction” and said the claims reflect a misunderstanding of how designated contract markets regulated at the federal level operate.

Allegations Target Market-Making Structure

The lawsuit is the first known class-action case to target a prediction market platform, a rapidly growing sector that has drawn increased scrutiny from state regulators in recent months. At the center of the complaint is Kalshi’s relationship with market makers—firms that provide liquidity by taking the other side of customer trades. In April 2024, Susquehanna International Group (SIG) became Kalshi’s first institutional market maker dedicated to event contracts. SIG, founded by billionaire Jeff Yass, is a global quantitative trading firm known for its role in options and ETF markets. While Kalshi works with additional market makers, the company has not disclosed their names. SIG is widely seen as the platform’s primary liquidity provider.

The plaintiffs argue that market makers receive structural advantages through “unique contractual and technological integration” with Kalshi. These advantages, they claim, include lower fees, looser position limits and better market access—features that allegedly “greatly reduce” their financial exposure and put retail customers at a disadvantage.

The suit contends that these dynamics lead consumers to believe they are trading against other users when they may instead be matched with an institutional market maker. For example, a contract priced at 61 cents for the Detroit Lions to beat the Dallas Cowboys requires a counterparty for every trade, yet Kalshi does not identify whether the opposing order is from a retail user or a firm like SIG. Kalshi co-founder Luana Lopes Lara rejected the claims in a detailed post on X, saying the platform operates as a peer-to-peer exchange rather than a house-driven betting platform. She noted that many financial exchanges run affiliated market makers, and said Kalshi’s own affiliate, Kalshi Trading, accounted for less than 6% of the platform’s market-making volume last month.

Lopes Lara also criticized online commentators who have accused the platform of misleading users about counterparties, arguing that entrenched interests are pushing “false narratives” similar to those that emerged during early crypto-industry debates. Separately, sports betting analyst Alfonso Straffon submitted a letter to the U.S. Commodity Futures Trading Commission arguing that market makers in sports prediction markets operate no differently than liquidity providers in traditional financial markets.

Individual consumers hardly stand a chance, all the while thinking they are just betting against other consumers

Regulatory Pressure Intensifies

The lawsuit adds to a growing list of legal challenges against Kalshi. New York, New Jersey, Illinois, Nevada and Ohio have all issued cease-and-desist orders restricting the platform’s operations. In Massachusetts, Attorney General Andrea Campbell has accused the company of running an illegal sports betting business; a court will hear arguments on Dec. 9 regarding the state’s preliminary injunction and Kalshi’s motion to dismiss.

The escalating litigation comes as major U.S. sportsbooks prepare to enter the prediction market space. DraftKings and FanDuel are expected to roll out platforms in the coming months, with Fanatics, Coinbase and Donald Trump’s Truth Social platform planning similar offerings. Meanwhile, SIG and Robinhood announced last week that they will form a joint venture to launch a competing prediction market exchange. With new entrants emerging and regulatory battles underway, the outcome of the Kalshi lawsuit could influence how prediction markets are structured and supervised across the U.S.