Judge Grants Kalshi Temporary Relief in Betting Dispute

At the start of the month, Connecticut regulators took aim at KalshiEX LLC, Robinhood Derivatives, and Crypto.com, accusing them of running unlicensed gambling operations. 

The Department of Consumer Protection said their sports wagering contracts broke state law and demanded that all three platforms immediately stop offering bets. A federal judge has now offered Klashi temporary protection.

The Prediction Marked Fought Back

State regulators instructed the companies, including Kalshi, to allow Connecticut users to withdraw funds, warning that failure to comply could lead to civil fines or even criminal charges.

Commissioner Bryan T. Cafferelli made the state’s stance clear, explaining that “only licensed entities may offer sports wagering in the state of Connecticut”, emphasizing that none of the targeted platforms hold such a license. 

Regulators argued that without oversight, customers could be exposed to manipulated wagers, disputed payouts, or marketing aimed at underage or self-excluded users.

Kalshi reacted quickly, filing a lawsuit the day after receiving the order and arguing that its event-based contracts are governed by the federal Commodity Exchange Act, not state gambling law. 

As such, the company claims, the Commodity Futures Trading Commission has sole authority over these products, leaving Connecticut regulators without jurisdiction.

Judge Offers Breather to Kalshi

A federal judge has now granted Kalshi temporary relief. Judge Verson Oliver ordered the state to pause enforcement while the case moves through the courts, giving Kalshi some breathing room. 

Connecticut must file its initial response by January 9, 2026, with additional arguments due later that month. Oral hearings are scheduled for mid-February.

Connecticut is just one of several states taking action against the prediction market operator. Kalshi has relied heavily on the idea of federal preemption, citing the Dodd-Frank Act and arguing that state regulators cannot regulate its platform. 

In Massachusetts, regulators are asking a judge to halt Kalshi’s operations for unlicensed betting. Judge Christopher Barry-Smith questioned whether laws intended to protect financial markets should really govern sports wagers, while state attorneys argued that Congress never intended those rules to cover recreational betting.

Meanwhile, Nevada dealt Kalshi a setback when a federal judge ruled that sports outcomes do not qualify as legitimate “events” under commodities law. That decision reinforced that Kalshi’s products fall under state gaming regulations, inspiring similar challenges in six other states.