Securities Regulation Daily Wrap Up, DERIVATIVES—D.S.C.: South Carolina’s strict anti-gambling laws underpin complaint targeting Kalshi’s prediction market, (Oct 9, 2025)

By Rebecca E. Hoffman, J.D.

The action was brought in state court, but the defendants filed notices of removal based on the Class Action Fairness Act, diversity of citizenship, and federal questions.

In a complaint brought in state court, then removed to the District of South Carolina, Kalshi and its affiliated entities are charged with violations of South Carolina’s Statute of Anne—which prohibits gambling—stemming from Kalshi’s operation of a prediction market in the state (South Carolina Gambling Recovery LLC v. Kalshi Inc., No. 8:25-cv-12859 (D.S.C. Oct. 7, 2025)).

Kalshi Inc., in conjunction with several subsidiaries and related entities, operates a prediction market, involving the buying and selling of event contracts that are based on predictions of the outcome of an event such as a sporting match or an election. “While masquerading as novel securities offerings, these event contracts are in truth nothing more than illegal, unregulated wagers on the occurrence (or non-occurrence) of specific future events,” the complaint said.

Right of action. The plaintiff, South Carolina Gambling Recovery LLC, was formed for the purpose of enforcing the state’s strict gambling laws. South Carolina prohibits running casinos, horse races, or lotteries, except for one government-run lottery. The Statute of Anne, S.C. Code Ann. § 32-1-20, allows anyone who loses at least $50 on a bet to sue the winner, and if the loser does not sue within three months, anyone can bring suit and recover quadruple the loss. As such, the complaint explained, the public is deputized and motivated to rise against illegal gambling.

The complaint said that market makers such as defendant Kalshi Trading LLC, buy and sell contracts, operating just like sportsbooks. “And that is unsurprising,” the plaintiff said. “Traditional sportsbooks are a type of market maker—one focused only on event contracts for sports-related events.”

When someone buys a contract, the market maker’s money is on the other side of the ledger such that South Carolina residents are making bets “against the house.” Defendant Webull Corp. and the Robinhood entity defendants operate as market makers on their platforms, the complaint said, such that they are also violating the Statute of Anne. “Despite being separate legal entities, market makers … contract directly with Kalshi to provide liquidity to its prediction market,” the complaint explained. “In exchange, they receive all sorts of financial and non-financial kickbacks. In that way, all Defendants work in concert to make illegal, unregulated gambling available within the State.”

Removal to federal court. The defendants filed two separate notices of removal. They note that the plaintiff included in the complaint a section describing how the defendants’ conduct also violates federal law, including the Wire Act, which prohibits the transmission of bets or wagers through interstate commerce. The defendants intend to counter this allegation by asserting that event contracts are authorized under the Commodity Exchange Act, which would preempt the Statute of Anne in this case.

The defendants also claim that the Class Action Fairness Act provides diversity jurisdiction, appropriately applied here because the plaintiff is suing on behalf of thousands and the amount in controversy likely exceeds $5 million. As for diversity, one notice notes that defendant Robinhood Markets Inc. is not a South Carolina business, and the other submits that Webull Corporation and the Susquehanna defendants are “sham” defendants whose citizenship should not be considered for jurisdictional purposes, and that the plaintiff itself is a citizen of Florida.

That notice also puts forth a substantial question of federal law, namely whether federally regulated swap transactions constitute illegal, unrelated gambling. The defendants would argue that the “event contracts at issue were traded on an exchange market that is federally regulated as a [designated contract market] by the CFTC.”

The case is No. 8:25-cv-12859.

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