Washington State Sues Kalshi Over Alleged Illegal Online Gambling

After being kicked out of Nevada, at least temporarily, and hit with criminal charges in Arizona, Kalshi is now facing a civil lawsuit in Washington State.

On March 27, Washington sued KalshiEX LLC, accusing the Commodity Futures Trading Commission (CFTC)-regulated prediction market of running an illegal online gambling operation in violation of state law. 

Washington State Attorney General Nick Brown filed the complaint in King County Superior Court, arguing that the markets Kalshi offers on sports, elections, pop culture, and other “contingent event[s]” fall squarely within the state’s definition of gambling and violate both the state’s Gambling Act and Consumer Protection Act. 

As part of the lawsuit, the state is seeking to recover funds that Washington residents allegedly lost while trading on Kalshi’s platform. 

The complaint accuses Kalshi of operating throughout the state without a gambling license and uses the event contract exchange’s own words against it, pointing to advertisements where Kalshi said it has “cracked the code on legal betting in all 50 states for ‘sports markets’ and ‘everything else.’”

In the lawsuit, the state outlines the different wagers Kalshi offers in Washington, including sports spreads, over/unders, proposition bets, and parlays. It says the company does so in violation of Washington’s long-standing ban on most forms of online gambling, except for limited tribal exceptions. 

Announcing the lawsuit, Attorney General Brown said:

“Kalshi wants people betting on almost everything possible in life—the outcome of elections, Supreme Court cases, even wars. For Kalshi, every event, every tragedy is nothing more than a potential way for Americans to risk their fortunes and for Kalshi to get rich. As they advance this bleak vision of the future, they line their pockets and pat themselves on the back for sneaking around Washington’s gambling laws. No more.”

The same day the attorney general filed the lawsuit, Kalshi moved the case to federal court, removing it to the U.S. District Court for the Western District of Washington at Seattle. 

In its notice of removal, Kalshi argued that the dispute necessarily raises substantial federal questions involving the Commodity Exchange Act, the CFTC’s exclusive jurisdiction over designated contract markets, and UIGEA’s carve-out for transactions conducted on registered exchanges.

Complaint Portrays Kalshi App as a Public Health Threat

Washington’s lawsuit against Kalshi does more than simply accuse the prediction market of operating an illegal gambling platform in the state; it also alleges that the app’s design itself is part of the alleged harm. 

By focusing on the app, Washington has taken the case beyond the usual state-versus-platform licensing fight to break down how the app allegedly encourages repeated betting through push notifications, influencer promotions, social features, leaderboard rankings, and prompts showing what other users are trading. 

The lawsuit also argues that Kalshi uses visual design elements to emphasize potential payouts while downplaying risk, and blurs the line between gambling and investing with slogans such as “trade what you know” and “everyone is an expert at something.”

In making that argument, the state isn’t just saying the app is harmful; it says internet gambling violates Washington law because it “introduces new ways to exacerbate the same threats to health, welfare, safety, and morals” as traditional gambling, including “gambling addiction” and “other societal ills.”

Even if Washington’s lawsuit is centered on state gambling law, the focus on allegedly addictive gambling apps points to a possible shift in how legal challenges are starting to focus on app design.

On March 24, the Public Health Advocacy Institute (PHAI), the organization behind lawsuits targeting big tobacco in the 1990s that led to multibillion-dollar settlements, sued DraftKings, FanDuel, Genius Sports, and the NFL over allegedly addictive microbetting design.

A couple of days later, on March 26, PHAI filed a separate lawsuit against DraftKings and FanDuel over the “dangerously addictive design” of their apps that it says turns a “simple tap into an unlimited gateway for compulsive betting.” 

While the cases are different, Washington’s framing of Kalshi’s interface as a public health risk puts it on the same page as a growing legal movement that has put the technological “hooks” used on betting apps under the microscope. 

Removal Fight Could Shape Next Phase of Case

The state of Washington wants more than a permanent injunction against Kalshi; it’s also asking for restitution, disgorgement, civil penalties, an accounting of Washington users, and recovery of the money they lost while using the app. 

In a post on X, sports betting and gaming attorney Daniel Wallach explained that this lawsuit “highlights one of the most important enforcement tools available to states in a state court civil enforcement action—the ability to seek monetary remedies such as restitution, disgorgement, and civil penalties assessed on a ‘per violation’ basis.”

Attorney General Brown is clearly using that as part of the state’s toolkit as it goes up against the prediction market giant, as the state seeks to recover all the money allegedly lost by Washingtonians on the platform. The filing asks the court to halt Kalshi’s conduct, force the return of unlawfully acquired money, disgorge profits, and assess civil penalties for each Consumer Protection Act violation.

However, whether Washington can ultimately secure those remedies may depend on how the jurisdiction fight plays out, especially as Kalshi argues the case belongs in federal court. The prediction market says that Washington’s claims are preempted by federal law, including the Commodity Exchange Act and the CFTC’s authority over designated contract markets.

In a separate post on X, Wallach wrote that he expects Washington to challenge the move and seek to have the case sent back to state court. He explained that to keep the case in federal court, Kalshi would need to meet the high bar for “complete preemption,” which is “exceedingly rare,” and that the Supreme Court has recognized it in only a handful of statutes.  

According to Wallach, the procedural advantage currently sits with Washington. That makes this jurisdictional fight a critical early test, since it’ll determine whether Washington can continue pursuing its claims under state law or whether the case turns into a federal fight over how prediction markets are regulated.