Tensions between state regulators and emerging prediction markets have further escalated as KalshiEX LLC filed a lawsuit against the Maryland Lottery and Gaming Control Commission (MLGCC) on Monday, challenging a recent cease-and-desist order that threatened to jeopardize its business in the state. This development comes shortly before the CFTC’s April 30 roundtable, an event that could shape the future of US prediction markets.
Legal Ambiguity Fuels Ongoing Disputes
Filed Monday in the US District Court for the District of Maryland’s Northern Division, the lawsuit alleges Maryland is overstepping its regulatory boundaries with its attempted crackdown on Kalshi’s event-based financial contracts, particularly those focusing on sporting events. The company argues that it operates under the jurisdiction of the Commodity Futures Trading Commission (CFTC) and is thus subject to federal regulations.
The dispute revolves around a crucial unresolved legal question. Are sports-related event contracts financial derivatives regulated by federal law? Or do they have more in common with sports wagering, placing them under the jurisdiction of state-level gaming regulators? Maryland authorities favor the latter interpretation, leading to growing tensions between the company and the state.
In a recent cease-and-desist letter against Kalshi, MLGCC Director John Martin accused the company of offering what are essentially sports wagering products without the required license under Maryland law. Martin argued that the absence of such state-issued licensing made Kalshi’s contracts unlawful within Maryland, necessitating intervention by authorities.
Prediction Markets Face Rising Opposition
Kalshi’s newest lawsuit seeks to defend its position in Maryland, arguing the cease-and-desist order was an unconstitutional overreach. The company contends that Maryland is meddling with federally regulated trading activity and violating the Supremacy Clause by trying to interfere with a product approved at the federal level.
At least six states have cease-and-desist orders against Kalshi. However, the company remains defiant, especially after its milestone legal victory in Nevada. Despite ongoing regulatory headwinds, particularly in jurisdictions like New Jersey, Kalshi can rely on some key political allies. Donald Trump Jr. joined the company as a strategic advisor earlier this year, while President Trump nominated former Kalshi board member Brian Quintenz to lead the CFTC.
With the April 30 CFTC roundtable fast approaching, the future of prediction markets in the United States remains uncertain. While the session should hopefully help dispel some of the uncertainties surrounding these offerings, US courts remain the final proving ground for companies like Kalshi. Experts agree that prediction markets cannot exist in a legal grey area forever, and the only permanent solution remains to establish definitive legal boundaries.