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Prediction market operator KalshiEX LLC has taken its legal battle with state regulators to the federal level. On Monday, Kalshi filed a lawsuit in the U.S. District Court in Maryland, challenging a cease-and-desist order from the Maryland Lottery and Gaming Control Commission.
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Maryland accused Kalshi of offering unlicensed sports betting through its platform. The state’s cease-and-desist notice stated, “Kalshi is operating in Maryland and is offering and conducting what is, in fact, wagering on sporting events,” without a valid state-issued sports wagering license.
Kalshi pushed back, arguing that its contracts are not sports bets but federally regulated financial products. In its filing, Kalshi said the state’s actions violate federal law: “Kalshi is authorized by the Commodity Futures Trading Commission (CFTC) – the federal agency that Congress endowed with ‘exclusive jurisdiction’ to regulate trading on federally designated exchanges like Kalshi.”
At the heart of the conflict is a question of legal classification. Are Kalshi’s sports event contracts a form of gambling controlled by states, or are they commodity futures regulated by the federal government?
Two key obstacles complicate Kalshi’s position. First is the 1961 Federal Wire Act, which restricts interstate sports betting. Second is the CFTC’s own Rule 40.11, which bars contracts tied to activities like gambling if they are illegal under state or federal law.
Maryland is one of at least six states to issue cease-and-desist orders to Kalshi. In response, Kalshi has taken legal action in Maryland, Nevada, and New Jersey.
Nevada’s court gave Kalshi an early win, temporarily blocking the state’s order. New Jersey, however, has mounted a tougher defense. Attorney General Matthew Platkin wrote, “Kalshi is wrong,” arguing that no company can sidestep state law simply by operating under a new format or federal designation.
The outcome of these cases could impact how future event-based contracts are handled across the country, especially as more platforms test the boundaries between financial instruments and gambling.
Kalshi is not without support. In January, the company added Donald Trump Jr. as a strategic advisor. The following month, President Trump nominated Brian Quintenz, a former Kalshi board member, to head the CFTC.