Connecticut judge lets state keep pressing Kalshi over sports contracts

A federal judge in Connecticut has denied Kalshi’s request for a preliminary injunction, allowing state officials to keep pressing their case against the company’s sports-event contracts.

As reported earlier this month, a federal judge in Utah also let that state enforce its gambling restrictions against Kalshi.

The Connecticut dispute began after the Department of Consumer Protection sent cease-and-desist letters to KalshiEX LLC, Robinhood Derivatives and Crypto.com over sports wagering offered through online prediction markets. In its enforcement release, the agency said only licensed entities may offer sports wagering in Connecticut, and that none of the three companies held a license.

The department also said the contracts violated other state rules, including age restrictions that limit online or in-person gaming and sports wagering to people at least 21. It ordered the platforms to stop advertising, offering, promoting or otherwise making available sports event contracts to Connecticut residents, and to let residents withdraw any funds held on the platforms.

The state warned that failure to comply could bring civil penalties under the Connecticut Unfair Trade Practices Act, as well as criminal penalties under Connecticut gaming laws. DCP Gaming Director Kris Gilman said the platforms were deceptively advertising that their services were legal and were operating outside a regulatory environment that left consumers exposed.

Kalshi sued the department in December after receiving the cease-and-desist order. In its complaint, the company said Connecticut’s move threatened the federal government’s exclusive authority over derivatives trading on exchanges overseen by the Commodity Futures Trading Commission, and sought preliminary and permanent injunctions as well as declaratory relief.

The company also argued that shutting down its event contracts in Connecticut would expose it, its customers and its counterparties to immediate and irreparable harm. It said the state’s action could threaten its viability and would force it to build complex technological fixes whose feasibility was uncertain.

U.S. District Judge Vernon D. Oliver rejected that request on Aug. 10, according to the earliest reports. He found that sports event contracts offered by Kalshi do not qualify as swaps under the Commodity Exchange Act because they depend on the outcome of sporting events or discrete in-game occurrences, rather than on whether an underlying sporting event occurs, fails to occur or occurs to a particular extent.

He also said that even if the contracts were treated as swaps, Kalshi had not shown that federal law would pre-empt Connecticut’s gambling rules. The ruling said sports wagering has long been subject to state regulation because of the public interests and risks involved.

Connecticut Comptroller Sean Scanlon had earlier warned of the “dark side” of prediction markets in a monthly economic update during the dispute. The order leaves Connecticut regulators free to continue their enforcement effort for now.