Connecticut officials filed a lawsuit against KalshiEX LLC on August 26, intensifying a months-long dispute over the company’s sports event contracts. The action, brought in Hartford Superior Court by Attorney General William Tong and Department of Consumer Protection Commissioner Bryan Cafferelli, with support from Governor Ned Lamont, asks the court to permanently bar the platform from offering these products in the state without a sports wagering license. It also seeks civil penalties and disgorgement of revenues the state claims were obtained unlawfully.

Kalshi transferred the case to federal court the same day. The platform, designated as a contract market by the Commodity Futures Trading Commission since 2020, maintains that its event contracts fall under exclusive federal derivatives oversight and cannot be treated as gambling by individual states.

State Claims Contracts Mirror Licensed Sports Betting

The complaint focuses on Kalshi’s sports event contracts, which allow users to trade on outcomes including team or player victories, point totals, spreads, standings, and individual statistics. It also targets combo products that combine multiple outcomes in a single trade. Connecticut argues these function identically to regulated sports bets rather than legitimate financial instruments.

Officials note that Kalshi has never held or applied for the required state sports wagering license. The filing further alleges the company marketed itself as a lawful nationwide option while using investment-style language that the state views as misleading.

Consumer protection issues form a core part of the case. Kalshi permits trading by users as young as 18, while Connecticut’s regulated sportsbooks require participants to be at least 21. The state also cites the absence of mandatory self-exclusion tools, deposit limits, contributions to problem-gambling funds, and third-party integrity monitoring that licensed operators must provide.

Prior Enforcement and Court Setbacks for Kalshi

The current lawsuit builds on earlier state action. In December 2025, the Department of Consumer Protection ordered Kalshi, along with Robinhood and Crypto.com, to stop offering sports event contracts to Connecticut residents. Kalshi responded the next day by suing state officials in federal court, asserting that federal commodities law preempts state gambling rules.

That effort suffered a setback this month. On August 10, U.S. District Judge Vernon Oliver denied Kalshi’s request for a preliminary injunction. The judge ruled that the sports contracts do not qualify as swaps under the Commodity Exchange Act and that federal law does not override Connecticut’s sports-wagering statutes. Kalshi has appealed the decision to the U.S. Court of Appeals for the Second Circuit.

Jovy Dedaj, Kalshi’s head of litigation, criticized the new state filing as part of a pattern of uneven enforcement. He noted that other prediction market platforms continue operating in Connecticut while Kalshi faces heightened scrutiny, arguing that such inconsistency demonstrates the need for uniform federal oversight.

Broader State-Federal Clash Over Prediction Markets

Connecticut’s move is part of a wider confrontation involving multiple jurisdictions. Washington has imposed preliminary restrictions requiring Kalshi to halt various markets and implement geofencing. Baltimore has filed separate complaints against Kalshi and another platform. Arizona pursued criminal charges, while Illinois issued a cease-and-desist letter that later became the subject of federal litigation.

The Commodity Futures Trading Commission has sided with Kalshi’s jurisdictional position. In April, the agency, joined by the Department of Justice, sued Connecticut, Arizona, and Illinois, contending that states cannot apply gambling restrictions to contracts listed on federally regulated designated contract markets. CFTC Chair Michael Selig stated at the time that the commission would protect its exclusive authority over these markets.

Connecticut is simultaneously opposing the federal lawsuit while advancing its own enforcement case against the company. Similar preemption disputes continue in other courts, including a New York ruling earlier this year that also rejected Kalshi’s request for an injunction at the preliminary stage.

Industry Growth Adds Stakes to the Legal Questions

Prediction markets have expanded rapidly. Industry trading volume rose from roughly $2 billion in August 2025 to $38.5 billion one year later. In a recent week, Kalshi recorded about $9.10 billion in total volume, with crypto-related contracts accounting for approximately 20 percent of that activity.

Although Kalshi settles contracts in U.S. dollars, the broader sector increasingly intersects with cryptocurrency infrastructure through deposit options and related platforms. The resolution of whether these products are treated as federally supervised derivatives or state-regulated gambling will influence access, liquidity, and the overall structure of the market across the United States.

Connecticut is seeking a permanent injunction along with financial remedies. Kalshi continues to pursue its federal preemption claims through parallel appeals and related litigation in multiple forums. The outcome of these cases is expected to influence how similar event contracts are regulated nationwide.