Securities Regulation Daily Wrap Up, DERIVATIVES—E.D. Ky.: Complaint over Kalshi’s event contracts in Kentucky removed to federal court, (Oct 22, 2025)
Law Firms Mentioned:Bahe Cook Cantley & Nefzger PLC
Organizations Mentioned:Kalshi Inc. | Kalshi Klear Inc. | Kalshi Klear LLC | Kalshi Trading LLC | KalshiEx LLC | Kentucky Gambling Recovery LLC | Robinhood Derivatives, LLC | Robinhood Markets, Inc. | Stites & Harbison, PLLC | Susquehanna Government Products, LLP | Susquehanna International Group, LLP | Webull Corp.
By Rebecca E. Hoffman, J.D.
Kalshi and its codefendants submit, as they have in several other jurisdictions, that the matter demands resolution of federal law issues.
Kalshi Inc. and its subsidiaries and affiliated entities filed notices Oct. 20 to remove to federal court a complaint filed in Kentucky state court by an entity formed for this purpose, which asserts that the defendants offer event contracts to Kentucky citizens that violate Kentucky’s gambling laws (Kentucky Gambling Recovery LLC v. Kalshi Inc., No. 3:25-cv-00053 (E.D. Ky. Oct. 20, 2025); Kentucky Gambling Recovery LLC v. Kalshi Inc., No. 3:25-cv-00054 (E.D. Ky. Oct. 20, 2025)).
The Kentucky matter is just one of many pending cases involving Kalshi and its cohorts, asking courts to decide whether Kalshi’s platform offerings are tantamount to illegal sports betting. For a comprehensive collection of these, see data analyst Mick Bransfield’s tracker.
Is it gambling? According to the complaint, Kalshi’s prediction market, within which Kentucky citizens have been buying and selling event contracts, violates Kentucky’s version of the Statute of Anne, Ky. Rev. Stat. § 372.040, also known as the Loss Recovery Act, which provides a right of action to recoup gambling losses, and if the loser does not sue within six months, permits anyone to sue for triple the amount of losses.
Although Kentucky allows sports betting, entities offering this activity must be licensed. Most other forms of gambling are prohibited. “Defendants allow the State’s residents to wager on the outcome of an athletic competition, on the results of an election, and on whether a particular song will break into the Billboard Top 100,” the complaint explained. “These wagers are indistinguishable from those offered in casinos, sportsbooks, and other gambling establishments.”
Multiple arguments support removal. The defendants claim in their filings that the non-diverse defendants were fraudulently joined. Excluding those, there is complete diversity of citizenship, they said, given that the plaintiff is a Florida entity and the defendants are not, and this, along with amount in controversy exceeding $75,000, permits the exercise of federal jurisdiction.
The removal notices state that deciding whether the contracts Kalshi offers constitute illegal gambling “necessarily raises substantial and disputed federal law issues,” since the complaint alleges that the conduct runs afoul of the Wire Act, which prohibits the transmission of bets or wagers through interstate commerce. The defendants aim to prove that the Wire Act does not apply because their conduct is expressly permitted by the federal Commodity Exchange Act and the CFTC’s regulations. The CFTC has exclusive jurisdiction over derivatives, including event contracts, the defendants attest, preempting application of the Statute of Anne.
In addition, the defendants argue that the Class Action Fairness Act, 28 U.S.C. § 1332(d), justifies removal. There is minimal diversity of citizenship among class members, the aggregate amount in controversy is predicted to exceed $5 million, and the class would have thousands of members. “Instead of attempting to satisfy class-action requirements, Plaintiff created an empty business entity to sue on others’ behalf and thus achieve the same aggregation effect while keeping the recovery for itself and circumventing those class-action requirements,” the defendants said.
The cases are Nos. 3:25-cv-00053 and 3:25-cv-00054.
Attorneys: Grace E. L. Greenwell (Bahe Cook Cantley & Nefzger PLC) for Kentucky Gambling Recovery LLC. Chadwick Aaron McTighe (Stites & Harbison, PLLC) for Robinhood Markets, Inc. and Robinhood Derivatives, LLC.
Companies: Kalshi Inc.; KalshiEx LLC; Kalshi Klear Inc.; Kalshi Klear LLC; Kalshi Trading LLC; Susquehanna International Group, LLP; Susquehanna Government Products, LLP; Kentucky Gambling Recovery LLC; Robinhood Markets, Inc.; Robinhood Derivatives, LLC; Webull Corp.
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