UMVA has learned that Kalshi, a prediction market platform, has filed a lawsuit against Rhode Island officials, accusing the state of trying to block its federally regulated business through threatened gambling enforcement.
The lawsuit, filed in the U.S. District Court for the District of Rhode Island, names top state officials, including the Attorney General, and claims they are attempting to intrude upon the federal framework established for regulating derivatives on federally designated exchanges.
Kalshi operates a platform regulated by the Commodity Futures Trading Commission, where customers trade contracts tied to various outcomes, such as election results, economic data, and sports events. The company argues that its products are federally regulated derivatives, not illegal gambling activities under state law.
According to information obtained by UMVA, tensions between Kalshi and Rhode Island officials escalated during a meeting on May 20, where the state questioned whether Kalshi's exchange complied with state gaming laws and declined to provide advance warning before enforcement action.
The lawsuit states that Kalshi sought assurances that it would not be subject to enforcement action without prior notice, but the Attorney General's office made it clear that no such assurances would be given. This development has sparked a clash between Kalshi and Rhode Island over federal-state jurisdiction.
Rhode Island has separately sued Kalshi and another prediction market platform, Polymarket, in state court, arguing that their sports event contracts amount to unlicensed sports betting products under state law. The state claims that these platforms are evading its laws and links them to lost revenue and addiction concerns.
The state's lawsuit alleges that Kalshi and Polymarket are profiting from activities that are heavily regulated in Rhode Island, and that their actions are detrimental to the state's revenue stream and potentially harmful to vulnerable individuals.
Kalshi is seeking declaratory relief and injunctions to block Rhode Island officials from enforcing state gambling laws against the company, which has already faced challenges from several states, including Wisconsin and Montana.
However, federal judges in other states, such as Arizona, have recently sided with Kalshi, finding that the company is likely protected from state gambling enforcement due to the oversight of its exchange operations by the Commodity Futures Trading Commission.
