Arizona's attorney general is accusing Kalshi of operating an illegal gambling business in the first-ever criminal charges filed against the wildly popular prediction market site, where people bet billions of dollars a week wagering on sports, elections and what politicians will say during public appearances.
State prosecutors allege that Kalshi, which is based in New York City, is running an unlicensed online gambling operation that lets residents bet on sports and elections without ever having received approval from Arizona regulators. Sports betting is regulated by an Arizona gaming commission and gambling on elections is illegal in the state.
There are more than 20 civil lawsuits over Kalshi's legal status, but Arizona is the first state to allege the company has committed criminal violations. While Kalshi's executives are not named as defendants in the charging documents, misdemeanor convictions in the state could include asset forfeiture and the possibility of jail time.
"Rather than work within the legal frameworks that states like Arizona have established, Kalshi is running to federal court to try to avoid accountability," the state's attorney general, Kris Mayes, said in a statement.
A Kalshi spokesperson called the criminal charges "seriously flawed" and "meritless," vowing to fight the case.
It's the latest episode in a growing rift between states and the Trump administration, which has embraced online prediction markets like Kalshi and Polymarket and has pledged to defend their right to exist in court.
While Polymarket's most popular site operates overseas and outside the purview of U.S. regulators, Kalshi is overseen by the Commodity Futures Trading Commission, an agency that has historically monitored futures contracts on things such as livestock, crude oil and gold and silver prices.
But in Trump's second term, the agency has allowed the prediction market industry to flourish. Michael Selig, the chair of the CFTC, has said the Trump administration is ready to back prediction market companies as they battle state regulators, who have dragged Kalshi and Polymarket to court for allegedly skirting longstanding state gambling laws.
"This is a jurisdictional dispute and entirely inappropriate as a criminal prosecution," Selig said in a post on X about Arizona's criminal charges on Tuesday. Selig said the CFTC is "watching this closely and evaluating its options."
Selig is currently the only commissioner sitting on the five-seat CFTC as the other seats have not yet been filled more than a year into the second Trump administration.
Since experiencing exponential growth in recent months, the prediction market industry has been beset by controversy. Bettors on Polymarket have made hundreds of thousands of dollars on the capture of Nicolás Maduro by U.S. forces. Other users made six-figure profits betting on the killing of Iran's Supreme leader.
This week, an Israeli journalist said he received a barrage of death threats after Polymarket traders pressured him to change details in a story about an Iranian bombing so the bettors, who wagered on whether it was a missile, or a drone, or something else, could cash out. Despite the threats, he did not change his story. Polymarket has condemned the threats and said they would ban the traders who harassed the journalist.
While bets on war and assassinations are illegal under U.S. law, that has not stopped Polymarket's overseas site from regularly listing betting markets involving conflict and death. Incensed by the popularity of such betting, lawmakers in Washington have introduced legislation to further crack down on the prediction market industry.
The Arizona criminal case against Kalshi "raises the stakes considerably" for other pending legal cases in the state involving Kalshi, said Daniel Wallach, a gambling lawyer who closely follows legal cases involving prediction market firms.
He notes that Kalshi has sued to prevent state prosecutors from enforcing gambling laws against them in states including New Jersey and Tennessee.
"That 'win the race-to-the-courthouse' strategy has proven to be an effective tactic thus far," Wallach said, adding that the Arizona case shows that "states have increasingly utilized state court enforcement actions as the first line of attack."
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