Prediction markets platform Kalshi is facing a class action lawsuit in the District Court for the Central District of California over its handling of a market concerning the departure of Iranian Supreme Leader Ayatollah Ali Khamenei. The lawsuit, Risch v. KalshiEX LLC, alleges the platform ran a "predatory scheme to exploit retail consumers."
The dispute centers on the "Ali Khamenei out as Supreme Leader?" market. Plaintiffs, who held positions worth approximately $259.84, expected their "yes" contracts to pay out $1 per share following Khamenei's confirmed death on February 28, 2026. However, Kalshi invoked a "death carveout provision" in its rules, which states that if a leader leaves office "solely because they have died," the market resolves based on the last traded price before the event, not at the full $1 payout.
The plaintiffs argue this critical rule was not adequately disclosed at the time they entered their trades. "Plaintiffs and the proposed class members—who correctly predicted the outcome—did not receive the amounts they were promised," the suit states, claiming they received "arbitrary amounts" significantly lower than contract values. The total trading volume for the disputed market exceeded $54 million.
In response, Kalshi CEO Tarek Mansour defended the company's actions on social media platform X. "We don't list markets directly tied to death," Mansour said. "When there are markets where potential outcomes involve death, we design the rules to prevent people from profiting from death. That is what we did here." He acknowledged room for improvement in user experience and rule disclosure, noting the firm has reimbursed all fees and net losses so that "no trader lost money" on the market.
The lawsuit seeks compensatory damages for the full value of the expected "yes" payouts and punitive damages to deter similar conduct. Concurrently, the case has ignited a broader regulatory debate. Six Democratic U.S. senators, including Chris Murphy, have written to Commodity Futures Trading Commission (CFTC) Chair Michael Selig, urging an explicit ban on death-linked prediction markets, citing national security risks and perverse incentives. Senator Murphy called the situation "insane" and indicated plans to introduce legislation.
This legal and regulatory scrutiny emerges as prediction markets gain popularity. Kalshi recently raised funds at an $11 billion valuation, highlighting the sector's growth and the increasing stakes for clear rules and consumer protections.
