Kalshi Faces Lawsuit Over 'Death Exemption,' Sparking Regulatory Debate on Prediction Markets

Recently, prediction market platform Kalshi has been hit with a class-action lawsuit after refusing to pay out approximately $54 million in settlements. The dispute stems from the market's failure to settle contracts as investors expected following the death of Iranian Supreme Leader Ali Khamenei, specifically regarding predictions on "whether he would step down." The plaintiffs accuse Kalshi of using a so-called 'death exemption' clause to evade its payment obligations, arguing that the platform's user agreement implied that the 'Yes' option should be paid out if the leader left office due to death.

Kalshi responded that the platform has always explicitly excluded contracts directly settled based on 'death,' and its rules stipulate that when markets involving changes in an individual's position are affected by a death, settlement should be based on the last traded price before death. The company stated that it has refunded transaction fees and compensated net losses to affected users, and promised to optimize information disclosure and improve transparency in the future.

This case is not only a contract interpretation dispute but also triggers a deep review by U.S. financial regulators on the boundaries of prediction markets. According to current regulations of the U.S. Commodity Futures Trading Commission (CFTC), prediction contracts involving war, terrorist attacks, or assassinations are already prohibited. The current focus of the controversy is whether contracts that do not directly mention death but are substantially affected by it should be included in the restricted scope. Six Democratic senators have written to the CFTC Chairman, calling for a clear ban on all death-related prediction markets, warning that such products may induce moral hazards and national security risks. Senator Chris Murphy has publicly stated that he will push for legislation to systematically regulate such markets. As legal proceedings and policy discussions move forward in tandem, the compliance boundaries of prediction markets are facing a historic reshaping.