Traders flocked to prediction markets—now a criminal case is testing the model

The outcome could determine whether betting on real-world events remains a viable strategy.

[Source Images: Kalshi and Freepik]

Kalshi made headlines last month over allowing people to place wagers on the Iran war. Now the prediction market platform is being sued by the state of Arizona, the first state to file criminal charges against the controversial company. 

The platform, which allows users to place wagers on happenings, such as sports games or even current events, is being accused of operating an illegal gambling business that violates the state’s laws. In a 20-count document, prosecutors alleged that the platform is mischaracterizing itself to avoid being subject to gambling laws, and is improperly allowing bets on political races.

“Kalshi may brand itself as a ‘prediction market,’ but what it’s actually doing is running an illegal gambling operation and taking bets on Arizona elections, both of which violate Arizona law,” state Attorney General Kristin Mayes said in a statement. “No company gets to decide for itself which laws to follow.”

While Kalshi, which is overseen by the Commodity Futures Trading Commission (CFTC), has faced major scrutiny, it’s currently legal at the federal level because it’s classified as a financial trading platform rather than a gambling site. Essentially, that means that placing bets on sports—which makes up about 90% of the bets on Kalshi—doesn’t qualify as gambling. 

Prediction market platforms have become wildly popular, especially because they allow users to bet on cultural events, and even elections. But some of those bets have been broadly criticized, such as wagers over the Iran war or when a nuclear bomb will explode. In addition, some bettors have been accused of using insider knowledge to place bets on prediction market platforms. In February, the Israeli government said it had arrested military reservists for allegedly using a similar platform, Polymarket, in an attempt to profit off classified military operations, such as when the country would launch attacks.

When it comes to Kalshi, at least 20 federal suits have been filed against the company. In September 2025, Massachusetts became the first state to sue the company in an attempt to block the platform from operating. Last month, a judge in that case rejected a request by Kalshi to allow it to keep offering sports-event contracts in the state while it appeals an injunction that will ban it from operating without a state gaming license.

In regard to the new criminal suit, Kalshi is holding its ground on why the platform should remain legal and accessible. “Sadly, a state can file criminal charges on paper-thin arguments,” Kalshi said in a statement to CNBC. “States like Arizona want to individually regulate a nationwide financial exchange and are trying every trick in the book to do it. As other courts have recognized and the CFTC affirms, Kalshi is subject to federal jurisdiction.”

If Arizona should win the suit, it could limit Kalshi’s ability to operate nationwide by enabling more state-level restrictions to hit the platform. However, Michael Selig, the chair of the CFTC, said the Trump administration supports Kalshi and other prediction market platforms like it. In a post on X, Selig wrote: “This is a jurisdictional dispute and entirely inappropriate as a criminal prosecution.” He added that the CFTC is “watching this closely and evaluating its options.”

Fast Company reached out to Kalshi over the suit but did not hear back by the time of publication.

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Sarah Bregel is a writer, editor, and single mom living in Baltimore. She’s contributed to New York Magazine, The Washington Post, Vice, InStyle, Slate, Parents, and others. More

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