Michigan Attorney General Dana Nessel has filed a lawsuit against prediction market platform Kalshi, accusing it of offering trading contracts on the outcomes of sports events to state residents without a license, allegedly violating the state's Lawful Sports Betting Act. The lawsuit, submitted to the Ingham County Circuit Court, seeks an injunction to prevent Kalshi from continuing to operate sports-related prediction markets in Michigan.
The state government argues that, despite Kalshi defining these contracts as financial derivatives, their essence is no different from traditional online sports betting—users gain financial returns by predicting sports events such as match outcomes and scores, without obtaining an operating license from the Michigan Gaming Control Board. According to state law, any business providing sports betting services must obtain explicit authorization, otherwise it constitutes illegal operation.
The lawsuit also requests the court to classify Kalshi's actions as a “common law nuisance.” If supported, this would comprehensively prohibit the promotion or operation of related markets in Michigan. The core dispute in this case is whether these prediction contracts are legitimate financial instruments regulated by the Commodity Futures Trading Commission (CFTC), or disguised gambling that effectively bypasses state gaming regulations. The ruling may provide an important precedent for how states across the U.S. define prediction markets.
This legal action coincides with the significant controversy sparked by Kalshi's “Iran Supreme Leader Fate Market.” According to public data, the market had accumulated over $54 million in trading volume, betting on whether Iran's Supreme Leader Khamenei would be removed from office. However, after Khamenei's death in an airstrike, Kalshi did not settle based on the political event's outcome but instead liquidated based on the last traded price before his death. The company explained that U.S. regulations prohibit markets based on individual deaths, and its internal rules had long preset a “last traded price” mechanism for such situations.
To quell public opinion, Kalshi subsequently announced the refund of all transaction fees related to the market and fully reimbursed entry fees for users who entered after the death event. While this alleviated some user dissatisfaction, it still sparked widespread public questioning of the ethical boundaries of prediction markets.
Meanwhile, Washington is also strengthening its scrutiny of prediction markets. Earlier this year, several senators sent a letter to the CFTC, expressing concerns that markets involving violence, death, or political assassination could foster unethical speculation. The letter specifically pointed out that such products could be used to manipulate public opinion or spread false information, necessitating a clear regulatory framework. The challenges faced by Kalshi are not just individual compliance issues but also reflect the increasing tension between emerging financial instruments and traditional legal systems.