The regulatory storm surrounding prediction market operator Kalshi continues to intensify, with a growing number of states scrutinizing its operations. The Connecticut Department of Consumer Protection (DCP) has confirmed an open investigation into Kalshi for potentially violating state law. This development adds to the mounting legal pressure from regulators in Illinois, Nevada, New Jersey, and Ohio, all of which have issued cease-and-desist (C&D) orders to the company.

According to SBC Americas, Kaitlyn Krasselt, Director of Communications for the DCP, stated that Connecticut’s Gaming Division is investigating Kalshi for possibly operating illegally. While the department has yet to disclose further details, this move marks Connecticut as the fourth state to challenge the legality of Kalshi’s sports event contracts. Unlike other states that have formally ordered Kalshi to halt its operations, Connecticut has not yet issued a C&D.

Kalshi has been offering sports futures markets nationwide, including betting-style contracts for major sporting events such as the Super Bowl and March Madness. Critics argue that these contracts, while presented as financial instruments, closely resemble traditional sports betting and therefore require state licensure.

Multi-State Enforcement Actions Escalate

The Illinois Gaming Board (IGB) issued a cease-and-desist letter to Kalshi (pdf) on the first day of April, reinforcing claims that the company is engaged in unauthorized sports wagering. Similar notices were sent to Kalshi’s partner, Robinhood, and another prediction market operator, Crypto.com. The IGB’s letter asserted that Kalshi is in violation of the state’s Sports Wagering Act and Criminal Code, warning that continued operations could lead to civil or criminal penalties. Unlike other states, Illinois has not specified a deadline for compliance.

Ohio’s Casino Control Commission (OCCC) also issued enforcement notices to Kalshi, Robinhood, and Crypto.com. OCCC Executive Director Matthew Schuler justified the crackdown by stating that sports event contracts effectively function as unregulated sports bets, lacking the consumer protections mandated under Ohio law.

Legal Battles Unfold

Kalshi has responded to these regulatory challenges by filing lawsuits against New Jersey and Nevada regulators. The company argues that its sports contracts fall exclusively under the jurisdiction of the Commodity Futures Trading Commission (CFTC), not state gaming authorities.

In its legal filings, Kalshi contends that state regulators are overstepping their authority. The company claims that these state-level interventions disrupt the federal regulatory framework established by the CFTC, which oversees derivatives markets.

The legal battle has already seen developments in New Jersey, where a hearing initially scheduled for April 2 was postponed. Kalshi had sought a temporary restraining order to prevent enforcement actions but agreed to proceed directly to the preliminary injunction phase. The New Jersey Division of Gaming Enforcement (DGE) has until April 18 to respond, with Kalshi required to file its rebuttal by April 23.

Federal Pressure and Industry Reactions

The controversy has also drawn attention at the federal level. Nevada Representative Dina Titus, co-chair of the Congressional Gaming Caucus, has urged the CFTC to suspend sports event trading nationwide. In a letter to the commission, Titus expressed concerns that such contracts are circumventing established sports betting regulations. She also called for a prohibition on trading sports contracts while physically present in Nevada.

Major industry stakeholders, including the American Gaming Association and Major League Baseball, have also weighed in, urging the CFTC to clarify its stance on the matter.

Kalshi Stands Firm

Despite facing mounting legal and regulatory challenges, Kalshi maintains that its operations are lawful under federal law. The company argues that state regulators are unjustly interfering with CFTC jurisdiction and the broader financial derivatives market. The company emphasized its commitment to regulatory compliance and warned that state interventions threaten to undermine financial markets across multiple sectors.

As the legal battle unfolds, the future of sports prediction markets remains uncertain. With multiple states taking action and federal scrutiny increasing, the outcome of these cases could have far-reaching implications for the intersection of financial markets and sports wagering regulation in the U.S.