Washington State sued Kalshi on 27 March, accusing the company of running illegal online gambling in the state through its event contracts platform.
The complaint says Kalshi offers Washington users betting markets on sports, elections, public broadcasts, entertainment and other future events through its website and mobile apps.
It alleges the platform is accessible to Washington residents aged over 18, allows them to deposit funds and place bets statewide, and collects transaction fees as well as some deposit and withdrawal fees.
After the lawsuit was announced, Kalshi removed the case from King County Superior Court to the US District Court for the Western District of Washington in Seattle, arguing the dispute turns on federal law and the Commodity Exchange Act.
The complaint says Kalshi, which faces similar lawsuits in other states, expanded from limited offerings after its 2021 launch into politics, mention markets and sports betting, crossing a line into prohibited activity.
It later added spread bets, totals, proposition bets and combo wagers described in the filing as parlays handled through request-for-quote pricing.
The state further alleges Kalshi offered wagers tied to Washington political races, college basketball games and a wide range of non-sports topics, including public-hearing remarks and global political developments.
Washington says those products meet the state’s definition of gambling, and amount to professional gambling and bookmaking.
It further argues that they violate Washington’s long-standing ban on most online gambling outside limited tribal sports wagering conducted on tribal lands.
Prediction markets a ‘public health’ concern
Washington prohibits most forms of gambling, with only a few exceptions. It has a long history of targeting what it deems illegal gambling, including sweepstakes and social casinos.
The filing seeks a declaration that Kalshi’s conduct is unlawful, a permanent injunction, restitution, disgorgement, civil penalties, an accounting of Washington users and recovery of money allegedly lost by Washingtonians.
A salient part of the complaint focuses on product design and public health concerns.
Washington alleges online gambling carries elevated addiction risks and says Kalshi’s platform uses notifications, social features, leaderboards and other engagement tools that encourage continued betting activity.
The state also claims Kalshi markets to young adults and presents its contracts in a way that blurs the line between gambling and financial trading.
Kalshi’s removal notice lays out the company’s response in procedural terms, rather than on the underlying facts.
Kalshi fell back on its argument that it operates a federally regulated derivatives exchange under the exclusive jurisdiction of the Commodity Futures Trading Commission.
It contends that Washington’s claims raise disputed federal questions, including whether the state’s gambling laws can apply to event contracts traded on a designated contract market.
Kalshi also points to similar litigation already pending in multiple federal courts and says removal was timely because it had not yet been served with the complaint when it was filed in federal court.