Kalshi Faces Legal Battle Amid Allegations of Market Manipulation

Kalshi is under legal scrutiny following accusations of engaging in illegal sports gambling and market manipulation. Despite recent financial successes, including significant valuation growth and funding, the platform faces a proposed class-action lawsuit.

Legal Challenges for Kalshi

According to Bloomberg, the lawsuit accuses Kalshi of operating an unlicensed sports betting operation, while marketing itself as a "legal" sports betting platform without appropriate state gaming licenses. Allegations include claims that the company sets betting lines disadvantageous to consumers.

"Consumers wagering on the platform face money provided by sophisticated market makers," the plaintiffs stated, suggesting illegal and unregulated betting against the "House."

Kalshi, however, insists it operates as a federally regulated derivatives exchange under the oversight of the CFTC. Founder Luana Lopes Lara publicly denied these allegations, attributing them to competitors and misunderstanding of event markets.

"These claims are fueled by competitors to amplify a baseless lawsuit," Lara said, emphasizing the platform's peer-to-peer exchange model.

In a similar vein, Polymarket faced restrictions in 2022 but has since resumed U.S. operations after regulatory adjustments.

Kalshi's Financial Growth

Kalshi's recent $1 billion funding round has elevated its valuation to $11 billion. This follows a $300 million raise and mirrors rival Polymarket's ambitions of a $15 billion valuation. Both platforms gained popularity by enabling political event betting, notably predicting New York City's mayoral election results, which boosted trading activity significantly.

Kalshi recorded $50 billion in annualized trading volume, up from $300 million the previous year. The company has further strengthened its position by partnering with Coinbase for USDC custody and settlement management.