Kalshi is in unfamiliar territory in its legal battle against Massachusetts Attorney General Andrea Campbell and the Massachusetts Gaming Commission (MGC). After losing an attempt to elevate the case from state to federal court, this week the financial firm filed its motion to dismiss and motion for a preliminary injunction to keep operations live while the case moves forward.
Over 46,000 MA users registered with Kalshi
In the motion, Kalshi expresses grave concerns about the effects and practicality issues that offlining Massachusetts customers would cause, both from a cost perspective and from a functionality perspective.
In his declaration filed with the courts, the company’s Head of Markets Xavier Sottille said there were nearly 46,000 Kalshi accounts with a Massachusetts address, over 36,000 of which are full-fledged Kalshi members. Those members have been involved in more than 25 million contracts on the platform and are responsible for tens of millions of dollars in trading.
Sotille also noted that these accounts merely provide a Massachusetts address and the site has no way of knowing whether or not these users are actually in Massachusetts when trading contracts on the site. He said that installing geolocation services to geofence out Massachusetts in order to comply with an injunction would cost tens of millions annually and that it would take months to even negotiate a deal with a geolocation partner.
Kalshi could be facing this problem elsewhere, as a Maryland District Court judge denied a preliminary injunction that would keep sports-related event contracts online in the state while the case was litigated. That decision is currently under appeal in the Fourth Circuit Court.
Kalshi says offlining MA puts $650M in contracts at risk
Sotille also noted that while geolocation would solve the problem of future customers, having to cancel or pause long-term existing contracts in Massachusetts would “wreak havoc” on the $650 million in open contracts across the platform and threaten the entire ecosystem of the Kalshi exchange.
“If traders in Massachusetts are locked out of their positions, then their trading counterparts in other states will likewise be limited in whether and how often they can enter and exit their positions on the Kalshi exchange,” Sotille explained. “Pausing transactions in Massachusetts would thus disrupt users’ positions on the exchange nationwide, which they placed in reliance on their ability to flexibly enter and exit.”
In its complaint, Kalshi also argued that impartial access is a core principle of the Commodity Futures Trading Commission (CFTC) and the court forcing such a move could jeopardize the group’s standing with its regulatory body.
However, in a communication to DCMs issued on Oct. 1 in advance of the government shutdown, the CFTC actually warned firms to be prepared and submit contingency plans for how they would handle being told to offline by court orders in certain states. Kalshi made no mention of this mandate in its motion to the Massachusetts courts.
Does MA law outlaw every prediction market?
In Kalshi’s motion, it also cast a much wider net on what it thinks the scope of what Massachusetts is asking for in terms of limiting markets.
Kalshi claims that Massachusetts takes issue with all of the contracts offered on the platform but that it only took action once the company started offering sports contracts.
The reason Kalshi states that Massachusetts considers all contracts to be in violation of the state sports betting law is that the statute mentions betting on “sporting events” and “other events” and that the latter encompasses all forms of prediction markets. This is not an argument the state explicitly brought up in its complaint, which is focused specifically on sports contracts. Even that, Kalshi argues, is a mark against the state’s intent.
In a footnote, Kalshi criticizes the state’s complaint for not explaining how the phrase “other events” does not stand in direct conflict with the Commodity Exchange Act (CEA).
The rest of the motion levies much of the same debate presented in the federal cases against state regulators. Kalshi also argued that Massachusetts’ issue is really with the CFTC and that the legal action the state should be taking is against the regulatory body, by claiming that it is violating the Administrative Procedure Act (APA).
