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A legal dispute involving prediction market platform Kalshi has reached court after traders filed a class action lawsuit tied to a market about Iranian leadership. The case centers on how a specific rule connected to death outcomes was presented to users and whether traders received proper payouts after the market closed.
Court filings claim that Kalshi failed to disclose a rule that would prevent the market from resolving in the expected way. Plaintiffs argue that users who traded on the contract were not clearly informed about the policy and its potential effect on settlement.
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The market in question focused on whether Ali Khamenei, the former Iranian Supreme Leader, would leave office. After confirmation of Khamenei death, Kalshi voided the trading positions connected to that contract rather than resolving the market to a “yes.”
Plaintiffs claim the decision contradicted expectations formed when users read the platform rules. According to the lawsuit, the rule that removed death outcomes from the contract was not clearly included in the summary presented to traders before they placed bets.
The complaint argues that users could not reasonably understand how the contract would behave under such circumstances. Plaintiffs wrote that the rule existed but appeared in a way that did not properly alert traders.
Court documents state that the carveout policy was “not incorporated into the user-facing rules summary,” and was not displayed in a way that would notify a “reasonable consumer” of the policy or its effects.
The lawsuit also refers to a later acknowledgment tied to earlier wording in the platform rules.
“Defendants, themselves, later acknowledged that their prior disclosures were ‘grammatically ambiguous,’” the lawsuit filing said.
Traders involved in the case argue that death represented the most likely outcome through which Khamenei could leave power. The lawsuit suggests that both users and the platform understood that reality while the market operated.
The filing describes the rule as harmful to participants who believed the contract would settle differently.
Plaintiffs wrote: “With an American naval armada amassed on Iran doorstep and military conflict not merely foreseeable but widely anticipated, consumers understood that the most likely, and in many cases the only realistic, mechanism by which an 85-year-old autocratic leader would ‘leave office’ was through his death. Defendants understood this as well.”
Kalshi leadership responded publicly after the dispute gained attention among prediction market traders. Tarek Mansour, co founder of Kalshi, said the platform follows a long standing policy that avoids contracts tied directly to death outcomes. He said:
“We don’t list markets directly tied to death. When there are markets where potential outcomes involve death, we design the rules to prevent people from profiting from death.”
Mansour also defended the handling of the contract settlement. According to his statement, Kalshi reimbursed users who held positions in the market. Compensation was calculated using the final trading price recorded before confirmation of Khamenei death.
However, that reimbursement plan triggered additional criticism from traders. Plaintiffs claim the process lacked transparency because the platform did not disclose how it determined the exact timestamp used to identify the last traded price.
The lawsuit states that both the calculation method and the timing used to determine the price were never explained to traders in advance.
Despite the criticism, Mansour said the platform did not gain financially from the outcome. He argued that reimbursement ensured traders did not suffer losses:
“Kalshi made no money here and even reimbursed all losses out of pocket. Not a single user walked away losing money from this market.”