- Washington state sued Kalshi on Friday, alleging its event-based contracts violated state gambling laws.
- The complaint said Kalshi’s platform functioned like a sportsbook while labeling itself a “prediction market” to bypass regulations.
- The lawsuit came as Coinbase also faced backlash over similar prediction market promotions, later attributed to a “bug.”
Washington state Attorney General Nick Brown filed a lawsuit on Friday against Kalshi, alleging the company violated state gambling and consumer protection laws.
The lawsuit, filed in King County Superior Court, alleged that Kalshi violated the Washington State Gambling Act and the Consumer Protection Act and sought to halt the company's operations in the state, recover money lost by Washington residents, and impose civil penalties. Kalshi is an online platform that allows users to place bets on real-world events, including sports games.
According to the complaint, Washington maintained a tightly regulated gambling market, including a ban on online gambling, but Kalshi’s products allegedly bypass these restrictions by presenting betting as “prediction markets.”
The complaint also alleged that Kalshi marketed its services as “legal betting” while engaging in activities that meet state definitions of gambling and bookmaking. It further claimed the platform promoted excessive betting behavior and targeted younger users, including college students.
Why Washington Calls It Illegal Gambling
Because Kalshi's primary activities fall under the state's expansive legal definition of unlawful online gambling, the company is accused of breaking Washington's gambling laws. Under a 2006 law (RCW 9.46.240), which forbids the transmission and participation in gambling activities online unless specifically permitted, Washington strictly forbids the majority of online betting.
According to the state's definition of "gambling," Kalshi's platform permits users to place bets on uncertain future events, such as elections or sports results, with payouts contingent on those outcomes. Additionally, Kalshi is perceived as engaging in "professional gambling" and "bookmaking," both of which are prohibited by Washington law, because it charges fees, facilitates bets, and provides liquidity through affiliated entities.
Regulators essentially contend that Kalshi functions similarly to an online bookmaker in a state where such operations are expressly prohibited. On Friday, Brown said Kalshi’s model effectively turned “every event, every tragedy” into an opportunity for betting, adding that the company was attempting to sidestep state law by rebranding gambling as prediction markets.
Following this, Kalshi filed to move the case to federal court, saying it received "no warning or dialogue" from Washington prior to the lawsuit and that it was already litigating these issues in other federal courts.
Coinbase Also Faces Backlash Over Prediction Markets
The lawsuit against Kalshi came amid broader scrutiny around prediction markets and their promotion on crypto platforms towards younger audiences.
Earlier this week, Coinbase (COIN) faced backlash after users reported receiving multiple push notifications encouraging them to “predict” outcomes related to sports events during March Madness, a basketball tournament. Several users described the notifications as resembling gambling advertisements.
Coinbase CEO Brian Armstrong responded on Friday, saying the notifications were sent due to a “bug” in the system and that the issue was being fixed. He added that while prediction markets may appeal to some users, they should not be pushed onto customers who do not want them.
Coinbase had previously partnered with Kalshi to integrate prediction market services into its platform.
Coinbase was trading down 0.27% after hours. The stock closed over $161 on Friday. On Stocktwits, retail sentiment around Coinbase shifted to ‘neutral’ from ‘bearish’ territory, while chatter levels remained ‘high’ over the past day.
The legal pressure on prediction markets has not been limited to state courts. A bipartisan pair of U.S. senators reportedly introduced legislation that would prohibit Commodity Futures Trading Commission (CFTC) regulated platforms like Kalshi from listing contracts tied to sporting events. The bill could also affect the expansion plans of prediction markets by crypto exchange platforms like Robinhood (HOOD) and Gemini (GEMI).
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