Kentuckians sue Kalshi to recover gambling losses

LOUISVILLE (CN) — “Futures contracts” offered by Kalshi on election results, sports and the weather are illegal under Kentucky law, feed gambling addictions and promote “social ills” that harm adults and minors alike, according to the federal lawsuit filed by a resident of the Bluegrass State.

Kalshi Inc., founded by MIT graduates Tarek Mansour and Luana Lopes Lara, launched its web-based prediction market platform in July 2021 and allows users to buy and sell what it calls “event contracts” based on real-world events like sports and politics.

The class of disgruntled users in Kentucky who filed suit Monday in federal court against Kalshi and various subsidiaries disagree with the company’s characterization of its services.

“Defendants attempt to cleverly disguise these contracts as unique securities and/or commodities purportedly regulated by the Commodities Future Trading Commission; these event contracts are nothing more than thinly veiled illegal wagers based on the outcome of specific future events,” the users say in the complaint.

Kentucky regulates sports gambling in the commonwealth through its Horse Racing and Gaming Commission, which requires any bookmaker to obtain a license and pay a fee, neither of which Kalshi has done.

“Kalshi believes that it is above Kentucky law, operating what it calls a ‘prediction market’ that allows Kentucky residents to buy and sell ’event contracts’ related to everything from elections to sporting outcomes. It does this without any attempt to follow Kentucky’s regulations or obtain a license to operate within the law.

“Kalshi takes millions out of Kentucky’s economy with this activity every year, all without registering to do business in Kentucky or paying any taxes to the state,” the plaintiffs say in the lawsuit.

Importantly, a mechanism exists in Kentucky’s gambling laws that allows individuals who lose money in illegal gambling ventures to recover their losses.

Donovan Roberts, the lead plaintiff, will attempt to do just that.

Represented by attorney Christopher L. Rhoads of the Owensboro, Kentucky firm Rhoads and Rhoads PSC, the class of Kentuckians decry the ubiquity of gambling in the modern age.

“In the past, slot machines, table games, and sports betting were limited to casinos and other venues that had to attract gamblers to come to particular venues in specific jurisdictions. Now, Kalshi is one of many companies that has begun offering the ability for gamblers to satisfy their gambling addiction 24-hours-a-day, 365-days-a-year, without having to leave their homes or workplaces,” the class says in the complaint.

Roberts and the other plaintiffs who lost money on Kalshi’s platform emphasize the company requires users to place bets with real money, unlike some other “social casinos” that allow for the use of virtual currency.

According to the plaintiffs, the social casinos and other online gambling apps are particularly appealing to teenagers.

They cite a 2021 study which found “30% of users of these games between the ages of 12 and 18 later become regular gamblers,” and emphasize Kalshi not only allows individuals under the age of 21 to use its app, but also encourages it.

The class want the court to order a refund of the net losses sustained through Kalshi’s platform in the past five years to the members of the class.

Several courts have intervened in cases where state authorities attempted to regulate or stop Kalshi from offering markets on elections, most recently in Arizona.

On May 5, a federal judge granted the company’s motion for a preliminary injunction and ordered the state to stop its prosecution of Kalshi, while the Third Circuit blocked any state regulation of the prediction markets in April of this year.

Kalshi did not immediately respond to a request for comment.

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