How is Kalshi Legal? Kalshi Legal Bombshell, CFTC Drops Appeal, But 8 States Fight Back in Court

Kalshi is legal because the CFTC authorized it as a Designated Contract Market (DCM) and the agency dismissed its appeal in May 2025, leaving a district court ruling intact that declared Kalshi’s political event contracts lawful under federal law. However, eight states have challenged Kalshi with cease-and-desist orders, creating a federal-state jurisdiction battle that’s splitting courts nationwide.

The prediction market platform now operates in legal limbo—federally approved but fighting state regulators from Nevada to New York who claim its sports and political contracts violate gambling laws.

What Legal Challenges Does Kalshi Face?

Kalshi won a crucial victory when a federal district court granted summary judgment on September 6, 2024, ruling that the CFTC exceeded its statutory authority under the Commodity Exchange Act (CEA) and that Kalshi’s political events contracts did not involve unlawful activity or gaming.

On May 5, 2025, the CFTC voluntarily dismissed its appeal against Kalshi’s congressional control contracts pending before the U.S. Court of Appeals for the D.C. Circuit. This dismissal left the pro-Kalshi district court decision standing without appellate review.

But the regulatory battle didn’t end there.

Eight states have issued cease-and-desist letters to Kalshi: Nevada, New Jersey, Maryland, Ohio, Illinois, Montana, Arizona, and New York. Each state claims Kalshi operates as illegal sports betting without proper licensing.

Kalshi has filed federal lawsuits in Nevada, New Jersey, Maryland, Ohio, and New York, arguing that the Commodity Exchange Act preempts state gaming laws and that the CFTC has exclusive jurisdiction over derivatives on designated contract markets.

Why Is Kalshi Under Regulatory Scrutiny?

State regulators view Kalshi’s contracts as gambling dressed up as financial derivatives.

The CFTC initially rejected Kalshi’s election contracts under Regulation 40.11, arguing they constitute “gaming,” violate prohibitions on contracts related to illegal activity, and could undermine public trust in elections.

The D.C. Circuit expressed discomfort with the CFTC’s expansive view of its authority during oral arguments on January 17, 2025. Weeks later, the agency dropped its appeal entirely.

Kalshi CEO Tarek Mansour argues that gambling involves creating artificial risk, while prediction markets function as derivatives exchanges that help market participants price real-world risks. He claims federal regulation supersedes state gaming laws.

State regulators disagree. Gaming commissions argue Kalshi isn’t properly licensed and doesn’t pay state taxes on sports trades.

What Did the Courts Decide?

Federal courts have split on whether states can regulate Kalshi.

Kalshi’s Wins:

Nevada’s U.S. District Court granted Kalshi a preliminary injunction on April 9, 2025, finding that Kalshi was likely to succeed on its argument that the CEA’s plain language grants the CFTC exclusive jurisdiction over transactions on designated contract markets.

New Jersey’s federal court also granted Kalshi a preliminary injunction, preventing the state from enforcing its cease-and-desist order.

Kalshi’s Loss:

On August 1, 2025, Maryland’s U.S. District Court Judge Adam B. Abelson denied Kalshi’s motion for preliminary injunction, marking the first time state regulators convinced a federal judge they likely aren’t preempted from regulating Kalshi’s sports event contracts.

The Maryland court found that compliance with both Maryland law and the CEA is possible, and that Kalshi could obtain a Maryland gaming license while still providing impartial access to its DCM as required under federal law.

Kalshi appealed the Maryland decision to the Fourth Circuit Court of Appeals on August 5, 2025. New Jersey has also filed an appeal to the Third Circuit.

Nevada’s federal judge warned that allowing each state to regulate could lead to conflicting rules and conflicts with the CFTC, highlighting the reason Congress granted the CFTC exclusive jurisdiction over CFTC-designated exchanges.

What Are the Implications for Prediction Markets?

This legal battle will reshape the prediction markets industry and fintech regulation.

For Kalshi:

Without an appellate ruling reversing the district court, the favorable decision for Kalshi stands, strengthening the argument that at least certain types of political event contracts are permissible under federal commodities law.

Kalshi self-certified sports-based contracts for the Super Bowl and Conference Championship games on January 23, 2025, despite previously arguing in the D.C. Circuit that sports-based contracts constitute gaming.

For the Industry:

The dismissal could encourage other platforms to test the boundaries of event contracts tied to political and sports outcomes. Crypto.com and Robinhood have already launched similar sports prediction markets.

The split at the district court level could result in conflicting Appeals Court decisions, potentially setting up Supreme Court review. The Supreme Court exhibited willingness to weigh in on betting in 2018’s Murphy v. NCAA, which ruled it unconstitutional for Congress to compel states to deny sports betting without an accompanying federal standard.

For Users:

States will continue to view certain event contracts as illegal gambling. Users face uncertainty about whether their trades are legal depending on their location.

What Happens Next?

Multiple legal battles are unfolding simultaneously.

In addition to cease-and-desist orders from Arizona, Illinois, Montana, and Ohio, Kalshi faces ongoing litigation in the Third Circuit (New Jersey) and Fourth Circuit (Maryland).

On October 27, 2025, Kalshi filed its newest lawsuit against the New York State Gaming Commission after receiving a cease-and-desist letter on October 24.

If the D.C. Circuit indicates a willingness to define “gaming” narrowly in future cases, the CFTC may be left with little authority to prevent similar contracts.

The CFTC’s voluntary dismissal—coupled with the cancellation of its April 30, 2025 roundtable on event contracts—signals the agency may be rethinking its approach to this category of products.

Kalshi CEO Tarek Mansour has brought on Donald Trump Jr. as a strategic adviser in January 2025, and President Trump appointed a former Kalshi board member to lead the CFTC in February. These connections may influence federal regulatory direction.

Former members of Congress and Native American tribes have filed amicus briefs in these cases, as the outcome could determine whether states retain authority to regulate activities they consider gambling when conducted on federally regulated derivatives exchanges.

Frequently Asked Questions

How is Kalshi legal?

Kalshi is legal because the CFTC authorized it as a Designated Contract Market, and the agency dismissed its appeal in May 2025, leaving a district court ruling intact that declared Kalshi’s political event contracts lawful under the Commodity Exchange Act. However, eight states challenge this federal authorization.

What regulatory challenges does Kalshi face?

Kalshi faces cease-and-desist orders from eight states—Nevada, New Jersey, Maryland, Ohio, Illinois, Montana, Arizona, and New York—claiming its sports and political contracts violate state gambling laws. Courts have split on whether federal law preempts state regulation.

Is Kalshi regulated by the CFTC?

Yes. KalshiEx LLC is registered with the CFTC as a Designated Contract Market, and its affiliate Kalshi Klear LLC is registered as a derivatives clearing organization. This federal designation is at the heart of Kalshi’s argument that states cannot regulate its platform.

What does this mean for prediction market users?

Users face legal uncertainty depending on their location. Federal courts in Nevada and New Jersey have sided with Kalshi, while Maryland’s court ruled against the company. States will continue viewing certain event contracts as illegal gambling.

Can Kalshi appeal regulatory decisions?

Yes. Kalshi appealed Maryland’s unfavorable ruling to the Fourth Circuit on August 5, 2025. New Jersey has filed an appeal to the Third Circuit. These appellate decisions could create circuit splits requiring Supreme Court intervention.

What contracts does Kalshi offer?

Kalshi offers event contracts that allow individuals and entities to stake money on whether events like hurricanes, jobs reports, elections, and sports outcomes will occur. On January 23, 2025, Kalshi self-certified sports-based contracts for the Super Bowl and Conference Championship games.

Will the Supreme Court review this case?

The split at the district court level could result in conflicting Appeals Court decisions, potentially setting up Supreme Court review. The Supreme Court has shown willingness to weigh in on betting-related matters, as demonstrated in 2018’s Murphy v. NCAA case.

Disclaimer: This information is for educational purposes only and does not constitute legal advice. Consult an attorney specializing in financial regulation or fintech law for legal guidance.

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Last updated: October 31, 2025

About the Author

Sarah Klein, JD, is a licensed attorney and legal content strategist with over 12 years of experience across civil, criminal, family, and regulatory law. At All About Lawyer, she covers a wide range of legal topics — from high-profile lawsuits and courtroom stories to state traffic laws and everyday legal questions — all with a focus on accuracy, clarity, and public understanding.
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