Baltimore Sues Kalshi, Polymarket Over Alleged Illegal Sports Betting

Prediction markets let users trade event contracts tied to politics, sports, culture and weather, but their rapid expansion has blurred the line between financial products and gambling. The industry’s growth matters because advertising restrictions and consumer safeguards applied to casinos and online sports betting do not necessarily constrain prediction platforms, leaving regulators to weigh risks to minors, people prone to compulsive wagering and consumers exposed to claims of easy profits.

New York City Council Speaker Julie Menin opened the inquiry on Aug. 12, 2026, sending letters to Kalshi, Polymarket, Coinbase and Gemini Titan seeking details on marketing reaching New Yorkers. The council will examine undisclosed influencer promotions, videos showing nonexistent trades on lookalike sites, fictitious profitable wagers and content promoting insider trading. It also plans a hearing as it considers legislation, enforcement, education and health measures. Council member Harvey Epstein said some forecasts put 2026 platform volume at $300 billion.

Kalshi lets customers trade event contracts tied to sports, elections and other outcomes and operates as a designated contract market overseen by the U.S. Commodity Futures Trading Commission. The dispute turns on whether those contracts are federally regulated derivatives or wagers that states may police under gambling laws. The answer matters beyond one platform: a federal win could preserve a national rulebook, while a state win could force prediction markets to obtain local gaming licenses, pay state taxes and follow consumer-protection rules in every jurisdiction.

New York Governor Kathy Hochul and Attorney General Letitia James sued Kalshi in state Supreme Court in Manhattan on July 31, 2026, accusing it of running an unlicensed gambling operation. The state seeks to halt the business, pay restitution, confiscate all allegedly illegal gains and impose fines equal to three times those gains; no fixed dollar amount was disclosed. The CFTC, which sued New York in federal court on April 24, is pressing emergency relief, arguing the Commodity Exchange Act gives it exclusive jurisdiction and preempts state enforcement against federally registered markets.

Decentralized prediction market Polymarket has been hailed as a truth machine. But a recent dispute over a contract asking whether MicroStrategy had sold Bitcoin exposed how such platforms’ determinations of fact can be highly vulnerable to after-the-fact rule interpretations, biased oracle voting and manipulation by large traders. It has also revived a regulatory debate over whether prediction markets should be treated as online gambling or financial derivatives venues.

The dispute began in May 2026, when MicroStrategy sold 32 Bitcoin before the May 31 deadline but did not report the transaction until June 1. Polymarket subsequently changed the rules and resolved the market as “No,” prompting fierce investor backlash. In July 2026, several traders who had backed “Yes” filed a class-action lawsuit against the platform in New York, alleging breach of contract and fraud and accusing it of depriving investors of legitimate gains through a biased decision.

Kalshi and Polymarket allow users to trade contracts tied to game outcomes, point spreads and player statistics. The dispute centers on whether these products are derivatives subject exclusively to oversight by the U.S. Commodity Futures Trading Commission, or must also comply with state gambling laws. Kentucky separately enacted legislation in April 2026 imposing a 14.25% tax on platform trading fees, above the 9.75% rate on racetrack wagers.

On June 17, 2026, Kentucky Attorney General Russell Coleman sued Kalshi, Polymarket and their partners Coinbase, Robinhood and Webull in Franklin Circuit Court, alleging that they offered sports betting without licenses and failed to provide support for problem gambling. The state described the two platforms as multibillion-dollar businesses. The case puts the Trump administration, which supports exclusive federal oversight, in direct conflict with a Republican-led state government.

Prediction markets allow users to trade contracts tied to the outcomes of elections, economic developments, sporting events and other occurrences. Kalshi, Polymarket and Crypto.com are all major platforms. Kentucky is the first state to impose a dedicated tax on such trades, a move that could affect platforms’ operating costs and shape whether other states can follow suit, as well as the boundaries of federal regulatory authority.

As of July 20, 2026, the three companies had formed a coalition and filed suit in a Kentucky court to challenge the state’s first-of-its-kind 14.25% tax on prediction-market trades. The companies argue that the tax subjects prediction markets to disparate treatment, making it discriminatory and unconstitutional. Available information has not disclosed the exact filing date, the damages sought or the date of the first hearing.

Kalshi and Polymarket allow users to wager on political, military and sporting outcomes through event contracts. Such products are regulated by the U.S. Commodity Futures Trading Commission, but have raised fairness concerns because people with access to confidential information could profit from them. In January 2026, a trader made more than $409,000 by betting on political developments in Venezuela.

On March 23, 2026, Kalshi barred candidates from betting on their own elections and prohibited sports insiders from trading related contracts. Polymarket also banned people with confidential information or the ability to influence outcomes from placing bets. On May 22, the U.S. House Committee on Oversight and Government Reform launched an investigation, saying more than 80 Polymarket users were linked to suspicious trades, and ordered both platforms to provide KYC and monitoring data by June 5.

Prediction markets allow users to trade contracts tied to the outcomes of elections, economic developments and major events, with Polymarket and Kalshi among the world’s leading operators. Brazil’s government considers such platforms to combine elements of gambling and derivatives trading, requiring compliance with local gambling laws and authorization to trade derivatives. The ban therefore has implications for how operators enter emerging markets and could serve as a regulatory reference for other countries.

Brazil’s government announced a ban on 27 prediction-market platforms on April 24, 2026, including Polymarket and Kalshi, saying the operators had neither complied with Brazilian gambling laws nor obtained authorization to trade derivatives. The action is regarded as the largest prediction-market crackdown yet in an emerging market. Attention is now focused on whether the operators can secure licenses, restore services and adjust their regional strategies.

Prediction markets allow users to trade “event contracts” tied to the outcomes of contests. Operators including Kalshi argue that such derivatives fall under the exclusive oversight of the U.S. Commodity Futures Trading Commission (CFTC), but Wisconsin considers them sports betting subject to state law. The case therefore raises questions about the boundary between federal and state regulatory authority.

The Wisconsin Department of Justice sued Kalshi, Robinhood, Coinbase, Polymarket and Crypto.com in Dane County court on April 23, 2026, seeking to halt sales of sports event contracts. The complaint alleged that sports contracts generate about 90% of Kalshi’s fee revenue, equivalent to roughly $1.3 billion on an annualized basis. On April 28, the CFTC countersued the state, asserting exclusive federal jurisdiction.

Kalshi and Polymarket allow users to wager on political and military outcomes through event contracts. Kalshi is regulated by the U.S. Commodity Futures Trading Commission, while Polymarket primarily settles transactions on-chain. The death of Iran’s Supreme Leader Ali Khamenei had implications for the country’s leadership and oil prices, but it also intensified regulatory scrutiny over whether such markets effectively enable trading on assassinations and allow insiders to profit from war.

After Khamenei was killed in U.S.-Israeli airstrikes on February 28, 2026, more than $54 million in Kalshi contracts on whether he would leave office were frozen because of ambiguous terms. In early March, Kalshi decided to reimburse users for their net losses at a cost of about $2.2 million. Comparable contracts on Polymarket recorded more than $58 million in trading. On April 6, seven members of the U.S. House of Representatives wrote to CFTC Chairman Michael Selig, seeking by April 15 an explanation of the agency’s enforcement of insider-trading rules and contracts tied to war.

Prediction markets allow users to trade contracts on election, economic or sports outcomes. Operators including Kalshi and Polymarket argue that their products are derivatives regulated by the CFTC, while states view proposition wagers as gambling, creating a jurisdictional clash between federal commodities law and state gaming laws.

The Utah Legislature passed HB243 in 2026, classifying proposition wagers on event outcomes as illegal gambling and barring operators from offering sports-betting-like prediction services in the state. Governor Spencer Cox has said he will sign the bill, exposing Kalshi and Polymarket to the risk of being blocked and facing enforcement action.