Oregon Class Action Lawsuit Targets Kalshi Over Alleged Illegal Sports Betting Platform Operations

In a dramatic escalation of legal pressure, prediction market operator Kalshi is now facing a barrage of class action lawsuits across multiple states, with plaintiffs accusing the company of running an unlicensed sports betting operation disguised as a “prediction market.” The latest blow comes from Oregon, where a federal class action lawsuit filed on February 20, 2026, alleges that Kalshi and its related entities are operating “an illegal online gambling enterprise” in direct violation of state law.

The Oregon Lawsuit: A Major Legal Challenge

The Oregon case, filed by plaintiff Ian Reynolds in federal court, represents a significant challenge to Kalshi’s business model. According to the complaint, Kalshi’s event contracts—which allow users to trade on outcomes including sports games—function identically to banned wagers under Oregon law. The lawsuit seeks double damages under Oregon’s loss recovery statute, along with restitution for a proposed class of affected users, a declaratory judgment, and a jury trial.

This legal action arrives amid growing scrutiny of Kalshi’s operations nationwide. The company, which markets itself as a legitimate prediction market regulated by the Commodity Futures Trading Commission (CFTC), now finds itself defending its business model in multiple courtrooms simultaneously.

A Pattern of Legal Challenges Across State Lines

The Oregon lawsuit is far from an isolated incident. In late 2025, New York federal court saw the filing of another proposed class action accusing Kalshi of misrepresenting its platform as lawful while actually offering unlicensed sports betting. This lawsuit, brought on behalf of thousands of users, contends that Kalshi deliberately misled customers about how its markets functioned while profiting from their losses.

“The company has violated gambling laws, engaged in illegal deceptive activity, and unjustly enriched itself at the expense of tens of thousands of consumers,” the New York complaint states emphatically.

Adding to Kalshi’s legal headaches, an Alabama class action filed in January 2026 alleges that the company’s operations violate that state’s notoriously strict anti-gambling statutes. Since Alabama largely prohibits traditional sports wagering, plaintiffs argue that Kalshi’s event contracts should be classified as bets subject to state regulation.

The Core Legal Argument: Prediction Market or Sportsbook?

At the heart of these lawsuits lies a fundamental question: Are Kalshi’s event contracts legitimate financial derivatives or illegal sports bets in disguise?

Plaintiffs in all three states argue that the contracts traded on Kalshi’s platform look and behave like wagers on sporting events. They point to the platform’s structure, where users essentially bet on whether specific outcomes will occur—such as whether a particular team will win a game or whether a certain statistic will be achieved during play.

Kalshi, however, maintains a starkly different position. The company emphasizes its registration with the CFTC as a designated contract market and argues that federal law, not state gambling rules, governs its exchange. Company representatives describe their platform as offering legitimate financial derivatives that allow participants to hedge against or speculate on future events.

The Market Maker Controversy

One particularly contentious aspect of the lawsuits involves Kalshi’s affiliated market-making entities. These affiliates provide liquidity by taking positions in trades, essentially standing on the opposite side of users’ bets. Plaintiffs argue this structure makes Kalshi functionally identical to a sportsbook, where the house always has a position ready for bettors.

Company leaders have forcefully rejected this characterization, describing the allegations as “misunderstandings” of how designated contract markets operate. They maintain that affiliated market makers are a standard feature of regulated exchanges and serve to ensure liquidity and price discovery rather than to guarantee profits for the platform.

Regulatory Backlash Intensifies

The class action lawsuits unfold against a backdrop of intensifying regulatory scrutiny. Gaming authorities in states including Massachusetts and Nevada have moved to restrict Kalshi’s sports event contracts, asserting they constitute illegal gambling without proper state licenses.

While some federal judges have sided with regulators in jurisdictional disputes, Kalshi continues to fight these rulings on legal grounds. The company argues that its CFTC oversight preempts state gambling regulations, creating a complex legal battleground where federal and state authorities appear to be at odds.

Industry Implications and Market Response

The legal challenges facing Kalshi raise broader questions about the future of prediction markets and the blurry line between financial derivatives and gambling. Industry observers note that if courts rule against Kalshi, it could have significant implications for other platforms operating in similar spaces.

The company’s stock price has experienced volatility as these legal challenges have mounted, with investors closely watching the outcomes of these cases. Some analysts suggest that even if Kalshi prevails in court, the reputational damage and legal costs could significantly impact its business model and growth prospects.

The Road Ahead

As these lawsuits progress through the legal system, several key questions remain unanswered. Will courts accept Kalshi’s argument that its CFTC registration shields it from state gambling laws? Can the company successfully defend its business model against allegations that it’s essentially operating an unlicensed sportsbook? And how will regulators reconcile conflicting interpretations of federal versus state jurisdiction over these activities?

The outcomes of these cases could establish important precedents for the emerging prediction market industry and potentially reshape how states approach the regulation of online betting platforms. For now, Kalshi finds itself in the uncomfortable position of defending its legitimacy in multiple courtrooms while simultaneously fighting regulatory battles across the country.

Featured image: Kalshi / Canva

Tags: Kalshi lawsuit, prediction market gambling, Oregon class action, illegal sports betting, CFTC regulation, online gambling enterprise, event contracts, market manipulation, sports betting platform, federal vs state law, designated contract market, gaming authorities, Massachusetts Nevada restrictions, Ian Reynolds lawsuit, double damages claim, loss recovery statute, unlicensed betting operation, prediction market controversy, regulatory backlash, market maker affiliates

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