Polymarket and Kalshi 'Caught' Trying to Flee to Federal Court... Ultimately Face State Government Illegal Gambling Lawsuit Bomb

▲ US, Lawsuit/AI-generated image

US prediction market platforms Polymarket and Kalshi lost their emergency appeal to block gambling-related lawsuits filed in Nevada and Washington. The two companies argued that state government lawsuits should be contested in federal court based on the Commodity Exchange Act, but the court did not accept this.

CoinGape reported on May 23 (local time) that judges of the US Ninth Circuit Court of Appeals dismissed Polymarket and Kalshi's emergency application. The two companies requested a temporary stay of the lower court's decision, but the appellate court ruled that the companies had not sufficiently proven their likelihood of success.

This case highlights the conflict between state gambling regulators and federally regulated prediction market platforms. Polymarket and Kalshi are platforms that trade contracts based on the outcomes of sports, politics, and other events. The two companies argued that the US Commodity Futures Trading Commission (CFTC) has regulatory authority over these products, and that federal regulation preempts state enforcement actions.

Nevada authorities raised concerns that the two platforms did not hold state gaming licenses. Washington state authorities viewed Kalshi as offering illegal gambling products through contracts that vary based on sports outcomes. However, the appellate court ruled that the case could not be moved from state court to federal court merely because a defense argument based on the Commodity Exchange Act was raised.

The court also rejected Polymarket's arguments. Polymarket claimed to be subject to federal control due to its compliance with federal regulatory requirements, but the judges ruled that simply following federal rules does not mean a private company is acting on behalf of federal officials.

The legal landscape surrounding prediction market regulation in the US is becoming more complex. Earlier this year, a New Jersey appellate court ruled in favor of Kalshi, stating that state authorities could not restrict the platform's sports event contracts. In contrast, several state courts, including Maryland, Ohio, and Nevada, have recently sided with state gambling regulators.

Nevada Judge Jason Woodbury ruled in April that Kalshi's sports-related contract restrictions should be maintained. He viewed these products as substantially similar to bets made by licensed sportsbooks. Meanwhile, the US Commodity Futures Trading Commission and the Department of Justice expressed opposition, stating that enforcement actions by several states could disrupt federally regulated derivatives markets.

Separate from this appellate decision, a US House panel has also launched an investigation into Polymarket and Kalshi. With the court dismissing the two platforms' emergency applications, prediction market operators continue to face the risk of lawsuits from state gambling regulators.

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