Kentucky sues Kalshi, Polymarket, joining prediction market legal battle

Kentucky filed lawsuits against prediction market platforms Polymarket and Kalshi, along with their associated trading platforms Coinbase, Robinhood, and Webull, on May 22, 2024. The state's Attorney General, Daniel Cameron, announced the legal action, alleging that these platforms are operating as illegal unregistered securities exchanges by offering contracts based on the outcomes of future events, including sports. The lawsuit specifically targets the sale of "event contracts" that allow users to bet on the likelihood of specific occurrences, such as whether a particular sports team will win a championship or if a certain political candidate will win an election. Kentucky argues that these contracts constitute securities and that the platforms have failed to comply with state and federal securities laws by not registering as exchanges and by not providing adequate disclosures to investors. This action by Kentucky follows similar legal challenges and regulatory scrutiny faced by prediction markets across the United States, including a prior lawsuit filed by the Commodity Futures Trading Commission (CFTC) against Polymarket in January 2023, which resulted in a $300,000 settlement. The core of the legal dispute centers on whether these event contracts qualify as securities or commodities, a distinction that has significant implications for how these platforms are regulated.