Kalshi Sues Connecticut Department of Consumer Protection After Cease-and-Desist Notice

• Kalshi levied a lawsuit against the Connecticut Department of Consumer Protection
• The lawsuit is in response to a cease-and-desist notice for sports event contracts from the state
• The Connecticut Department of Consumer Protection believes prediction market operators are engaging in illegal sports betting with contracts

Kalshi has taken a familiar path following a cease-and-desist notice from the Connecticut Department of Consumer Protection for its sports event contracts.

One day after receiving a cease-and-desist notice from the state, Kalshi levied a lawsuit in U.S. District Court against the Connecticut Department of Consumer Protection and its director, Kristofer Gilman, requesting a preliminary and permanent injunction against the state.

“The Connecticut Department of Consumer Protection seeks to prevent Plaintiff KalshiEX LLC (“Kalshi”) from offering event contracts for trading on its federally regulated exchange. It does so by threatening Kalshi with imminent criminal and civil penalties for offering these contracts. Connecticut’s attempt to regulate Kalshi intrudes upon the federal regulatory framework that Congress established for regulating derivatives on designated exchanges,” counsel for Kalshi wrote in the lawsuit.

Cease-and-Desist Leads to Lawsuit

The Connecticut Department of Consumer Protection Gaming Division issued cease-and-desist notices to Kalshi, Robinhood, and Crypto.com for their prediction market services, namely sports event contracts, reporting that all three platforms are offering sports wagers in violation of state law and without license.

According to the notices, the prediction market operators allow users to “purchase contracts based on their belief that a particular sport outcome will occur, such as a specific team winning a game, division, or championship.”

All three operators are currently offering illegal sports wagers in the state, according to the DCP, running afoul of state law and engaging in sports wagering without a license.

The cease-and-desist notices were filed on Tuesday, Dec. 2. Kalshi filed its lawsuit against the Department of Consumer Protection on Wednesday, Dec. 3.

The lawsuit claims the Connecticut Department of Consumer Protection seeks to prohibit Kalshi from offering sports event contracts within the state, despite federal laws permitting the contracts and Kalshi being a federally-designated derivatives exchange.

“It offers consumers the chance to invest in many types of event contracts, including, as relevant here, sports-outcome contracts. These contracts are subject to extensive oversight by the CFTC, and—critically—they are lawful under federal law. Earlier this year, the CFTC allowed Kalshi’s sports-outcome contracts to take effect without review,” counsel noted in the lawsuit.

It’s a familiar strategy for Kalshi, which has levied several lawsuits against state gaming commissions and regulators when faced with a cease-and-desist notice. Kalshi recently filed a lawsuit against members of the New York State Gaming Commission just two days after the regulatory body sent a cease-and-desist letter to the prediction market company on Friday, Oct. 24.

Why the Lawsuit?

Kalshi’s lawsuit against the Connecticut Department of Consumer Protection – and all of its lawsuits against state gaming commissions – revolves around the central question of who regulates sports event contracts, and prediction markets, in general.

Companies such as Robinhood, Kalshi, and Crypto.com believe that state regulatory bodies do not have the right to intrude on the government’s “exclusive” authority to regulate prediction market, filing lawsuits in New Jersey, Nevada, and Maryland to defend its practices. These companies believe the CFTC is the only regulatory body that can legally block contracts from being offered to customers.

State gaming regulators maintain the markets need to be beholden to regulations, taxes, and license fees that sports betting and gaming operators are required to follow.

The prediction market companies believe their offerings are not required to comply with state laws, as they have been preempted by the Commodity Exchange Act.