Legal Insights
Even amid national controversy, lawsuits, and new legislation aimed to curb their growth, prediction markets like Kalshi and Polymarket have only continued to grow in popularity. Prediction markets provide a place for anyone, anywhere, to buy and sell shares tied to the predicted outcomes of future events. Almost any topic is on the table—ranging from when Taylor Swift will get married to the war in Iran. This DE Insight follows the growing wave of legal and public challenges that illustrate why prediction markets are becoming a flashpoint in debates over gambling, finance, and consumer protection.
Gambling by Another Name?
The accessibility of prediction markets is part of its lure. Everyone has opinions, why not back them up with money if you have it? And if this sounds suspiciously similar to another pastime that is backed by chance, cash, and some skill—but mostly luck—then you are not alone. Prediction markets have drawn a firm line between themselves and online gambling. That is because staying within the lane of being an event market enables them to be federally regulated by the Commodity Futures Trading Commission (CFTC), rather than be subject to state gambling rules. However, prediction markets have been embroiled in litigation across many states. Those lawsuits, though important in defining what appropriate regulations and regulatory agencies should take control of these massively growing platforms, are only one part of the picture.
Outside of the clash between states and federal regulatory agencies, the active cases and many appeals, is another subset of litigation that provides an interesting look into how the public truly perceives prediction markets.
Insider Trading, Congressional Action, and Class Action Lawsuits
Prediction markets have fallen under intense scrutiny, with instances of insider trading catching the nation’s attention. In April 2026, the CFTC and the U.S. Attorney’s Office of the Southern District of New York brought parallel civil and criminal charges against a military member accused of using classified knowledge to place bets regarding the capture of Venezuelan President Nicolas Maduro on a prediction market platform[1], and the Senate has banned its own members from being on prediction markets at all[2].
But ordinary citizens have also been taking measures into their own hands, studying state laws that allow for the recovery of amounts of money lost to gambling and filing class action lawsuits against prediction markets. In Kentucky, plaintiff Donovan Roberts has filed a statewide class action complaint against prediction market Kalshi, alleging that, “Kalshi’s ‘prediction market’ is nothing more than gambling, and it is untaxed, unregulated, and illegal in Kentucky.”[3] The complaint filed by Mr. Roberts emphasizes a point often echoed by those who consider prediction markets to be nothing more than gambling—that the prediction markets allow individuals to bet on the outcomes of sport games, akin to traditional sports gambling[4]. Mr. Roberts seeks to recover money lost through Kalshi using a Kentucky statute that provides the losing party with a means to sue the winning party in civil court for the recovery of sums of $5 or more (or items of that value) through an action brought within 5 years of the payment, transfer, or delivery.[5] Similarly, in Massachusetts, plaintiff Nickolas Smith has filed a class action lawsuit against Kalshi and Robinhood, alleging that the platform was illegally allowing users to engage in sports betting, in violation of state gambling laws.[6] The filed complaint cites the efforts of the Massachusetts Attorney General, in their active litigation against Kalshi for violating the Massachusetts Sports Wagering Law by offering sports betting and not complying with the law.[7] Mr. Smith, who states that he struggles with gambling addiction and avoids traditional gambling establishments like casinos, alleges that prediction markets often lack the typical safeguards against gambling establishments because they are not being regulated by state gambling laws or agencies, which has caused him to lose “tens of thousands of dollars.”[8]
Interestingly, both Smith and Roberts seek, in part, to recoup their losses through laws in their respective state that were adopted from a 1710 British law passed during the reign of Queen Anne, also known as a “Statute of Anne.” The law allows for a losing party to sue the winning party to recover the value of their losses. And they are not the only ones—similar lawsuits have been filed across multiple states. They all employ a similar message: the people are the losers. And prediction markets are the big winner.
What This Means for the Future of Prediction Markets
The trend of such lawsuits being filed against prediction markets provides an insight into what some of the public perceives prediction markets as and builds onto the growing body of litigation in this area. Oftentimes, these class action lawsuits have been going hand in hand with, and in some cases, directly citing the state-initiated litigation against prediction markets for support. Paying close attention to how the courts perceive such arguments, then, will surely be vital in the larger landscape of defining and regulating U.S. prediction markets.
[1] Bobby Allyn, “U.S. soldier charged with using classified information to bet on Maduro’s removal,” NPR, https://www.npr.org/2026/04/23/nx-s1-5797957/maduro-raid-charges-polymarket-insider
[2] Mary Clare Jalonick, Senate bans its own members and staff from betting in prediction markets, AP News, https://apnews.com/article/senate-prediction-markets-betting-congress-ban-f067c97278654caeacd9e336b5474f1d
[3] “Statewide Class Action Complaint,” at 2, Donovan Roberts v. Kalshi, Inc.; Kalshiex LLC; Kalshi Klear, Inc.; Kalshi Klear LLC; Kalshi Trading LLC; Susquehanna International Group, LLP; and Susquehanna Government Products, LLLP, https://www.courthousenews.com/wp-content/uploads/2026/05/usdc-kentucky-kalshi-class-action-lawsuit.pdf
[4] Id. at 7.
[5] Id. at 10.
[6] “Class Action Complaint,” Nickolas Smith v. Kalshi Inc., KalshiEX LLC, Kalshi Klear Inc., Kalshi Klear LLC, Kalshi Trading LLC, Susquehanna International Group, LLP and Susquehanna Government Products LLL P and Robinhood Derivatives LLC, https://www.masscourts.org/eservices/searchresults.page?x=APikgLZk95hDp7vU-fs00*07KJDtRmt2HH10H9myUQOIYYyJtlvBW49kSDzFmKnN2qsgrhvav6mB-7TIJkj5SWMZ-hPcsa56l85sGWyv6Xbm9E5xxu1UDbGJCOAfnfyn86gRlIeJNLnopsbrNda33gRxj0fdbKwfOclChaANY0LLTAYmf*9QhgNfalJSwoC6XMPJW3y2bmSjlctfbKD9jw&antiCache=1779108160539
[7] Id. at 3.
[8] Id. at 5.
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