Nevada Regulators Sue Kalshi Hours After Federal Appeals Court Denies Stay Request

In a high-stakes legal showdown that could reshape the future of prediction markets and sports betting regulation, Nevada gaming authorities have filed a civil enforcement lawsuit against Kalshi, the federally-regulated derivatives exchange, just hours after a federal appeals court declined to pause the ongoing dispute.

The Nevada Gaming Control Board lodged its complaint in the First Judicial District Court in Carson City on February 17, 2026, requesting “a declaration and injunction to stop Kalshi from offering unlicensed wagering in violation of Nevada law.” This aggressive legal maneuver comes as the latest escalation in a battle that pits state gaming sovereignty against federal regulatory authority.

The Core Dispute: Prediction Markets vs. Sports Betting

At the heart of this controversy lies Kalshi’s innovative online marketplace, which operates as a federally-regulated derivatives exchange where users can trade event contracts. According to the Nevada Gaming Control Board’s complaint, Kalshi “operates a derivatives exchange and prediction market, which offers products referred to as event contracts for sale,” and critically, “those contracts are offered for sale on Kalshi’s website and mobile app, and are made available to people in Nevada.”

Nevada regulators argue that certain offerings from Kalshi cross the line from legitimate financial derivatives into illegal gambling territory. The state maintains that the company’s sports event contracts and other event contracts constitute wagering under Nevada law, and therefore “entities offering such event contracts must be licensed.”

The complaint specifically cites violations of Nevada Revised Statutes (NRS) 463.160, NRS 463.350, NRS 465.086, and NRS 465.092, which govern licensing requirements and prohibit the manipulation of outcomes in games.

Nevada’s Legal Theory: Kalshi as an Illegal Sports Pool

The state’s legal argument goes beyond simple licensing issues. Nevada contends that Kalshi’s platform constitutes both a “gambling game” and a “sports pool,” accepting wagers from Nevada residents on the outcomes of sporting events and other uncertain outcomes. The complaint argues that the exchange fits the definition of a “percentage game” because Kalshi “takes a commission, or percentage, on the wagers placed through its market” through trading fees.

Board Chairman Mike Dreitzer emphasized the seriousness of the situation in a statement accompanying the filing: “The Board continues to vigorously fulfill its obligation to safeguard Nevada residents and gaming patrons, and uphold the integrity of a thriving gaming industry.”

Federal Preemption Battle Heats Up

In a strategic countermove that demonstrates the complexity of this jurisdictional battle, Kalshi swiftly removed the case to the U.S. District Court for the District of Nevada. The company argues that the dispute belongs in federal court because it raises substantial federal questions under 28 U.S.C. § 1331, the federal statute granting district courts jurisdiction over civil cases arising under the Constitution, laws, or treaties of the United States.

Kalshi’s notice of removal characterizes the company as “a financial services company that operates a federally regulated derivatives exchange where users can buy and sell financial products known as event contracts,” emphasizing that the platform is “subject to exclusive federal jurisdiction as a designated contract market (‘DCM’) by the Commodity Futures Trading Commission.”

The company contends that Nevada’s claims “necessarily depend on the resolution of a substantial question of federal law” and fundamentally hinge on whether a federally-regulated exchange can simultaneously be treated as a “sports pool” under state law.

Broken Agreements and Strategic Timing

Adding another layer of complexity to the dispute, Kalshi alleges that Nevada proceeded with litigation despite having agreed in writing “not to initiate enforcement proceedings against Kalshi while [the Ninth Circuit] considers [Kalshi’s] stay motion.” This alleged breach of agreement could become a significant factor in the federal court’s analysis of the case.

Federal Support for Prediction Markets

The timing of Nevada’s lawsuit is particularly noteworthy given recent developments at the federal level. Earlier this week, the Commodity Futures Trading Commission, under Chairman Mike Selig, signaled strong support for federally-regulated prediction markets operating across state lines.

In friend-of-the-court arguments connected to litigation involving Crypto.com, the CFTC indicated that designated contract markets it oversees fall under exclusive federal jurisdiction. The agency’s position suggests that states may be preempted from applying their own gaming laws to CFTC-regulated event contracts, arguing that properly approved prediction market contracts are financial derivatives governed by federal commodities law rather than traditional sports betting subject to state-by-state regulation.

The Stakes: Gaming Industry Future at Risk

This legal battle represents far more than a simple licensing dispute. The outcome could determine whether prediction markets and event contracts fall under state gaming regulation or federal commodities oversight. For Nevada, a state whose economy heavily depends on gaming revenue and regulatory authority, maintaining control over prediction markets represents a critical economic and regulatory interest.

For Kalshi and similar platforms, a victory in this case could establish precedent allowing federally-regulated prediction markets to operate nationwide without navigating a patchwork of state gaming laws. A defeat, however, could force the company to either obtain state licenses in each jurisdiction or cease operations in states with restrictive gaming laws.

The Road Ahead

With the case now in federal court, the legal proceedings will likely focus heavily on questions of federal preemption and whether CFTC-regulated event contracts can be simultaneously classified as sports pools under state law. The federal court’s decision on jurisdiction will be crucial, as it could determine whether this case proceeds under federal commodities law or state gaming regulations.

As both sides prepare for what promises to be a protracted legal battle, the outcome will have significant implications not just for Kalshi, but for the entire prediction market industry and the future of cross-border financial derivatives regulation in the United States.

The case highlights the growing tension between innovative financial technologies and traditional regulatory frameworks, raising fundamental questions about the appropriate balance between state sovereignty in gaming regulation and federal authority over commodity markets in an increasingly interconnected financial landscape.

Tags:

Kalshi lawsuit, Nevada gaming regulators, prediction markets, event contracts, federal preemption, CFTC jurisdiction, sports betting regulation, financial derivatives, gaming law, legal battle, Nevada Gaming Control Board, commodity futures, regulatory authority, state vs federal jurisdiction, online gambling, sports pools, trading fees, legal precedent

Viral Sentences:

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