The prediction market platform Kalshi is facing a significant new legal challenge after the state of Washington filed a lawsuit on Friday, March 28, 2026, alleging the company's products violate state gambling laws. The complaint, brought by Washington Attorney General Nick Brown, argues that Kalshi's event-based contracts constitute illegal gambling under Washington's strict regulatory framework.
The lawsuit cites violations of the Washington Consumer Protection Act, Gambling Act, and Recovery of Money Lost at Gambling Act. In an announcement, AG Brown stated, "Kalshi’s website and app show consumers a range of events that they can bet on and the odds for those various events, which dictate how much the bettor will be paid out if the event occurs. This is exactly how sportsbooks and other gambling operations function. Kalshi advertises that they allow consumers to 'bet on anything' by simply calling their service a 'prediction market' rather than 'gambling.'"
The state's case hinges on Washington's legal definition of gambling as “staking or risking something of value upon the outcome of a contest of chance or a future contingent event,” a definition the AG argues Kalshi's activities "fall squarely within."
Kalshi responded by immediately seeking to move the case to federal court. In its filing, the company argued the issues are already being litigated in other federal courts and claimed there had been "no warning or dialogue" from Washington state prior to the lawsuit. Kalshi's core defense is that its event contracts fall under the exclusive jurisdiction of the U.S. Commodity Futures Trading Commission (CFTC), which has previously backed prediction markets in similar disputes.
This lawsuit is part of a broader, multi-state legal offensive against Kalshi. Earlier in March, a Nevada judge issued a temporary restraining order blocking Kalshi from operating in the state for 14 days, siding with the Nevada Gaming Control Board. Days before that, Arizona Attorney General Kris Mayes announced criminal charges against the companies behind Kalshi, alleging operation of an "illegal gambling business in Arizona without a license" and offering illegal election wagering. Arizona was among the first states to pursue criminal charges.
The state-level actions reflect growing regulatory scrutiny of prediction markets, particularly concerning contracts tied to sensitive events like elections or military actions, where concerns about insider information have been raised. The outcome of these cases will likely shape the future regulatory classification of prediction markets in the U.S., determining whether they are treated as financial instruments or gambling products.
