Nevada files lawsuit against Kalshi after federal appeals court stay denial

Nevada gaming regulators have taken their fight with Kalshi to court, filing a civil enforcement lawsuit just hours after a federal appeals panel declined to pause the dispute. The move came Tuesday, shortly after the U.S. Court of Appeals for the Ninth Circuit rejected the company’s emergency request for an administrative stay.

The Nevada Gaming Control Board said it lodged its complaint in the First Judicial District Court in Carson City on February 17. Through the filing, regulators are asking a judge for “a declaration and injunction to stop Kalshi from offering unlicensed wagering in violation of Nevada law.”

At the center of the case is Kalshi’s online marketplace. According to the complaint, the company “operates a derivatives exchange and prediction market, which offers products referred to as event contracts for sale,” and those contracts “are offered for sale on Kalshi’s website and mobile app, and are made available to people in Nevada.”

Regulators argue that some of those offerings cross a legal line. In the state’s view, providing “sports event contracts, or certain other event contracts,” amounts to wagering under Nevada law, and “entities offering such event contracts must be licensed.” The lawsuit maintains that Kalshi’s activities are “unlawful in Nevada” and run afoul of Nevada Revised Statutes (NRS) 463.160, NRS 463.350, NRS 465.086, and NRS 465.092, which deals with licensing and the manipulation of outcomes in games.

In a statement included with the filing, Board Chairman Mike Dreitzer said, “The Board continues to vigorously fulfill its obligation to safeguard Nevada residents and gaming patrons, and uphold the integrity of a thriving gaming industry.”

Nevada alleges Kalshi violated gambling and sports pool regulations

The complaint goes beyond general licensing concerns. It asserts that Kalshi’s “market is a gambling game and/or sports pool, and accepts wagers in or from Nevada.” Regulators say the company’s products satisfy Nevada’s definition of a sports pool because it “makes wagers on the outcomes of sporting events and other events for which the outcome is uncertain.”

The state also contends the exchange fits the definition of a “percentage game.” In the filing, regulators allege that Kalshi “takes a commission, or percentage, on the wagers placed through its market” through trading fees.

Nevada law, the complaint notes, makes it “unlawful for a person to expose a game or a sports pool for play in Nevada without the required gaming licenses.” Regulators want the court to declare that specific statutes “prohibit KALSHI from making event-based contracts” available in the state without approval and to issue an injunction blocking the company from continuing to do so.

Kalshi takes fight to federal court

Kalshi quickly shifted the battleground. Within hours, it removed the case to the U.S. District Court for the District of Nevada, arguing that the dispute belongs in federal court because it raises federal questions under 28 U.S.C. § 1331.

The code is the federal statute that gives U.S. district courts jurisdiction over civil cases that arise under the Constitution, laws, or treaties of the country, commonly known as federal question jurisdiction.

However, in its notice, Kalshi describes itself as “a financial services company that operates a federally regulated derivatives exchange where users can buy and sell financial products known as event contracts,” adding that the platform is “subject to exclusive federal jurisdiction as a designated contract market (‘DCM’) by the Commodity Futures Trading Commission.”

The company argues that Nevada’s claims “necessarily depend on the resolution of a substantial question of federal law” and hinge on whether a federally regulated exchange can also be treated as a “sports pool” under state law.

Kalshi further told the federal court that the state moved ahead even though it had agreed in writing “not to initiate enforcement proceedings against Kalshi while [the Ninth Circuit] considers [Kalshi’s] stay motion.”

Only this week, the Commodity Futures Trading Commission signaled support for federally regulated prediction markets operating across state lines. We reported that the CFTC, under chairman Mike Selig, has taken the position that designated contract markets it oversees fall under exclusive federal jurisdiction.

In friend-of-the-court arguments connected to litigation involving Crypto.com, the agency indicated that states may be preempted from applying their own gaming laws to CFTC-regulated event contracts. According to the report, the filing suggests the agency’s broader view that properly approved prediction market contracts are financial derivatives governed by federal commodities law, not traditional sports betting subject to state-by-state gaming regulation.

Featured image: Kalshi / Canva

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