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MILWAUKEE (CN) — The Ho-Chunk Nation on Wednesday sued online financial exchange Kalshi, saying it engages in illegal sports gambling on tribal lands.
Kalshi Inc.’s leaders have said that the site has nothing to do with gambling. But it is an online platform**** where users “trade on the outcome of real-world events,” according to the company’s website. Users can buy “yes” or “no” options to questions ranging from who will win their favorite sports team’s next game, to who will become the Democratic nominee for president in 2028. The platform has partnered with Robinhood to incorporate a prediction market hub on its investment platform.
A key issue the Nation raises in the complaint is that individuals can use the site on or off tribal lands, where gambling is regulated by Congress’ Indian Gaming Regulatory Act. The act creates a statutory framework for the operation of gaming by Native American tribes so that they may be the primary beneficiary of gaming operations and that gaming is conducted fairly and honestly, according to the National Indian Gaming Commission.
The act also provides that any gaming not authorized by a tribal-state gaming compact violates federal and state criminal law.
In the Ho-Chunk Nation’s Wednesday lawsuit against Kalshi and Robinhood Markets in the Western District of Wisconsin, the tribal nation claims Kalshi and Robinhood are engaging in illegal sports gambling on Indian lands by allowing users to choose “yes” or “no” to the outcomes of sporting events.
The Nation is seeking a permanent injunction to immediately stop what it says is illegal, unregulated and unabashed sports betting.
Kalshi offers a prediction market, where it says users can buy and sell contracts on the outcome of events. These event contracts are regulated by the Commodity Exchange Act.
The act prohibits any contract “based upon an excluded commodity, as defined in the CEA that involves, relates to, or references terrorism, assassination, war, gaming or an activity that is unlawful under any state or federal law," according to the Nation in its complaint.
Kalshi, the Nation says, is blurring the distinction between “minimization and allocation of market risk” and unregulated sports gambling.
The Commodity Exchange Act allows for event contracts that serve a commercial purpose, or those not used solely for gambling. The Nation argues in its 89-page complaint that Kalshi’s product runs contrary to Congress’ intent and should be stopped by the Commodity Futures Trading Commission.
In a separate case in early August, a federal judge in Maryland struck down Kalshi’s argument that the Commodity Exchange Act preempts state law, opening the door for the state’s games commission to shut down the platform’s sports events contracts.
Although the act does not specifically mention preemption, Kalshi argued that the presumption against preemption does not apply, because there has been a historically strong federal presence in the regulation of derivative markets like its sports event contracts.
The court shot this argument down, instead pointing out Kalshi’s “swaps” violate Maryland law and are prohibited.
The Ho-Chunk Nation claims that Kalshi’s platform, which is available across the country for anyone aged 18 and up, violates its sovereign right to regulate gaming on tribal lands. Wisconsin prohibits sports betting outside of contracts that the state has entered into with tribal nations located within the state, including Ho-Chunk and Potawatomi in Baraboo and Milwaukee, respectively.
The consequence is that it draws business away from the Nation’s casinos by allowing people to make bets from their homes that they previously could only make from the building.
In June 2023, the Commodity Futures Trading Commission notified Kalshi that it would initiate a 90-day review of the platform because it determined that the contracts “may involve, relate to or reference an activity enumerated” in the act, according to the Nation.
At the end of that review period, the commission ordered Kalshi to stop listing bets for congressional control leading up to the 2024 election. Kalshi appealed that decision, and the U.S. District Court for the District of D.C. found that political event contracts do not involve illegal gaming, according to the Nation.
Donald Trump Jr. announced on X following the 2024 election that he would join the Kalshi team as a strategic advisor, citing the lean toward President Donald Trump on the platform.
“Now, time to trade on whether Biden is going to pardon Fauci and Liz Cheney,” Trump Jr. wrote in the post.
In its complaint, the Nation also brings a false advertisement claim related to Kalshi’s ads asserting it is the first legal online sports betting platform. Kalshi misrepresents its offerings and the legality of them, according to the Nation, and induced Robinhood to engage in that false advertising with them.
The Nation claims to be irreparably injured by Kalshi’s business and requests damages, including disgorgement of ill-gotten gains, lost profits, costs and attorney fees. Neither the Ho-Chunk Nation nor Kalshi could immediately be reached for comment.
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