FEDERAL PREEMPTION—D. Conn.: KalshiEX takes on ano

FEDERAL PREEMPTION-D. Conn.: KalshiEX takes on another set of state authorities who it claims are trying to limit is business - 08 December 2025

KalshiEX brought its state litigation road show to Connecticut where it claims local authorities are interfering with a federal law that permits it to offer a prediction market.

KalshiEX LLC filed a federal lawsuit in the U.S. District Court for the District of Connecticut in its latest attempt to preempt state and local gambling and gaming laws that it claims interfere with federal laws that permit the company to offer its users a prediction market. According to KalshiEX, prediction markets are geared toward investments and do not amount to gambling or gaming that could violate state laws or regulations. During the past several years, Kalshi EX has brought lawsuits across the U.S. making similar claims with somewhat mixed results in federal courts in at least five states and in at least two federal appeals courts. KalshiEX's lawsuit against Connecticut was prompted by the state's Department of Consumer Protection Gaming Division's issuance of cease and desist orders to KalshiEX LLC, Robinhood Derivatives, LLC and Crypto.com. (KalshiEX LLC v. Cafferelli, No. 25-cv-02016 (Dec. 3. 2025)).

Parties. The plaintiff, KalshiEX, is a CFTC-regulated exchange that offers users the opportunity to trade event contracts, including sports-event contracts, as part of a prediction market. KalshiEX has its principal place of business in New York.

The defendants include the Connecticut Department of Consumer Protection, Bryan T. Cafferelli, Commissioner of the Connecticut Department of Consumer Protection, Kristopher Gilman, Director of Gaming for the Connecticut Department of Consumer Protection, and Connecticut Attorney General William Tong. The individual defendants are parties to the lawsuit in their official capacities.

Jurisdiction. KalshiEX filed its complaint in U.S. District Court for the District of Connecticut because its preemption claim arises under the Supremacy Clause of the U.S. Constitution. According to KalshiEX, the Eleventh Amendment to the U.S. Constitution also would not present a bar to suit because individuals and entities can sue state officials in their official capacities for injunctive relief. Lastly, all the parties reside in Connecticut and the relevant facts and events occurred in Connecticut.

Facts. KalshiEX said in its complaint that it is a federally designated derivatives exchange that is subject to the CFTC's exclusive oversight. The company asserted that it trades event contracts, including sports-event contacts, which it said are lawful under current federal law.

According to KalshiEX, event contracts can be used to hedge business risks. These types of contracts also can serve informational purposes. "Event contracts are a valuable means of communicating information to the public because contract prices reflect prevailing market opinions and conditions," said KalshiEX. "Prediction markets thus serve as sensitive information-gathering tools that can provide insights for stakeholders-including businesses, individuals, governments, and educational institutions."

The cease and desist letter directed to KalshiEX by the Connecticut Department of Consumer Protection alleged that KalshiEx engaged in unlicensed gambling and sports wagering in violation of state laws and regulations, including the state's Unfair Trade Practices Act. The letter said that only certain entities are currently permitted to engage in online sports gambling and that KalshiEX does not hold such a license, would not qualify for any exemptions under state law, and that even if KalshiEX held such license, the company's activities would still violate state laws and policies.

The letter said that KalshiEx could be subjected to civil and/or criminal penalties if it does not comply with the order to cease and desist. The letter also ordered KalshiEX to allow Connecticut residents to withdraw any of their funds currently held by KalshiEx.

Claims. According to KalshiEX, Connecticut's cease and desist orders, if carried out, would put the state at odds with federal law, which KalshiEX said preempts state regulation in this context. KalshiEX invoked the U.S. Constitution's Supremacy Clause as the legal basis for preempting Connecticut law regarding event contracts. Specifically, KalshiEX cites amendments made by Congress in 1974 to the Commodity Exchange Act that the company said caused the CFTC to occupy the field of regulation over the types of contracts offered for trading by the company.

Moreover, KalshiEX said conflict preemption would apply, in addition to field preemption, because Connecticut's laws would conflict with federal law in this area.

Relief requested. KalshiEX seeks preliminary and permanent injunctive relief and a declaration that certain Connecticut laws and regulations are preempted by federal law.

The case is No. 25-cv-02016.

© 2025 CCC Incorporated and its affiliates and licensors. All rights reserved.