Kalshi lawsuit in Montana sharpens dispute over prediction market rules
A derivatives exchange operator is now in federal court in Montana, pushing back against state regulators and widening a national dispute over prediction markets.
Kalshi filed its complaint Sunday (April 12) in the U.S. District Court, naming Attorney General Austin Knudsen and other officials. The company wants a judge to block what it sees as an imminent enforcement move and to clarify that its platform falls under federal oversight.
The dispute comes down to control over event contracts. These are financial products that let users trade on real-world outcomes, from economic data to elections. Kalshi says those trades belong under federal derivatives law, not state gambling statutes.
Kalshi sues Montana amid federal-state clash over regulation
Kalshi points to its status as a federally regulated exchange, arguing the Commodity Futures Trading Commission has “exclusive jurisdiction” over its operations. In its view, that authority leaves no room for state enforcement.
Montana regulators disagree. In an April 6 cease-and-desist letter, the state’s Gambling Control Division said it had concluded Kalshi’s activities “constitute illegal gambling within the meaning of Montana law” and warned that failure to stop could lead to “legal action against” the company.
The warning reportedly stands in contrast to an earlier agreement. In April 2025, state officials said they would “not initiate any civil or criminal enforcement against Kalshi during the pendency” of related litigation elsewhere. Kalshi now says Montana is stepping away from that position while appeals continue in an Arizona case, where the company recently secured a partial court victory.
Similar disputes are unfolding in other states. Kalshi has filed a separate lawsuit in Iowa over the same issue, while a federal judge in New Jersey paused enforcement against prediction market platforms. Each case adds another piece to the wider question of how federal commodities law interacts with state gambling rules.
Kalshi says it reached out to Montana officials after receiving the latest letter but got no clear response. It argues that the warning, combined with that silence, signals enforcement could happen soon.
In its filing, the company cites recent appellate court language saying it is “reasonable” to conclude that federal law preempts state regulation of trading on federally approved exchanges. Allowing Montana to act, Kalshi argues, would lead to conflicting rules across states and disrupt how futures markets operate.
The company also points to the risk of immediate harm. It references prior court findings describing “economic and reputational harm, including loss of business and goodwill” when enforcement actions move forward without judicial review.
Montana officials have not yet responded in court filings, but their earlier letters suggest they view these contracts as illegal under state law, with potential civil and criminal penalties.
Featured image: Kalshi / Canva
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