Kalshi has been accused of illegal sports gambling and manipulating the market. This comes as the company sees great growth in its valuations and major funding achievements.
Kalshi Hit With Lawsuit Over Alleged Market Manipulation
According to Bloomberg, the platform has been hit with a proposed class action that claims the company ran an unlicensed sports betting operation.
The complaint claims that the platform advertises itself as providing “legal sports betting” even though it does not have gaming licenses in any U.S. state. It also alleges Kalshi Trading creates betting lines in a way that puts customers at a disadvantage.
“When consumers place bets on the platform, they face off against money provided by a sophisticated market maker on the other side of the ledger,” the plaintiffs said. “Market makers make it possible for consumers to place illegal, unregulated wagers ‘against the House.’”
However, the firm says it operates only as a federally regulated derivatives exchange under the watch of the CFTC.
The company’s founder Luana Lopes Lara shared a public statement to deny the claimes. She said that the lawsuit was cooked up by their competitors. Lara also mentioned that the claims are based on not knowing how event markets work.
“This account and others are being paid by our competitor to amplify a baseless lawsuit. The allegations are false, and reveal a fundamental – and perhaps intentional – misunderstanding of how these markets work,” she said.
She said that the platform is peer-to-peer exchange where any participant can provide liquidity.
Polymarket also faced something similar to this. That firm was not allowed to serve U.S. users in 2022 because of a settlement with the CFTC. In September, Polymarket won back the ability to operate domestically by buying a derivatives exchange and clearinghouse.
Kalshi’s Growth Draws in Attention
The company recently raised $1 billion in funding bringing its total value to $11 billion. This follows a $300 million raise just two months ago. Meanwhile, rival prediction platform Polymarket is also aiming for a valuation of up to $15 billion in its next funding round.
Both platforms became very popular last year by letting users bet on political events. Their visibility grew even more after they successfully predicted the results of New York City’s mayoral election.
As a result, trading activity on the platform increased. It recorded $50 billion in annualized volume. That is an increase from $300 million the previous year.
The company has continued to build on its success. This month, Kalshi announced a partnership with Coinbase for USDC custody and settlement management. Through Coinbase, the platform will secure and process all USDC flows.