TLDR
- Kentucky’s AG Russell Coleman launched legal action against prediction platforms Kalshi and Polymarket for allegedly conducting unauthorized sports wagering activities
- Cryptocurrency and trading platforms Coinbase, Robinhood, and Webull were included in the complaint for failing to offer gambling addiction support
- The Bluegrass State becomes the latest of nearly 20 jurisdictions pursuing legal action against prediction market operators
- Federal commodities regulators have filed counter-litigation against eight states, claiming exclusive regulatory jurisdiction
- Court decisions remain inconsistent, with Michigan ruling against Polymarket while other jurisdictions favor the platforms
This week, Kentucky’s top legal officer Russell Coleman initiated litigation in state courts targeting prediction trading platforms Kalshi and Polymarket. The legal complaints allege both enterprises are conducting unauthorized sports wagering operations within state boundaries.
The legal documents additionally identify Kalshi’s partner companies Coinbase, Robinhood, and Webull. Kentucky authorities contend these firms violated state regulations by not offering mandatory support resources for individuals struggling with gambling addiction.
“Kalshi and Polymarket are operating illegal sportsbooks in Kentucky and breaking our laws,” Coleman declared publicly.
Combined, Kalshi and Polymarket generated $25 billion in monthly transaction volume during May, per Token Terminal data. Exclusion from significant U.S. markets could substantially impact their expansion plans.
Both Kalshi and Polymarket maintain they operate as federally sanctioned exchanges. Their position is that their event-based contracts qualify as swaps under federal commodities regulations, not sports wagers under state gaming laws.
“Kalshi is a federally regulated exchange — the CFTC is our regulator, not the states,” a company representative stated.
A Republican State Clashes With a Trump Policy Position
The legal action creates an unexpected political situation for Kentucky. The state delivered a commanding 64% vote share for President Donald Trump in the 2024 election. Yet this lawsuit directly opposes Trump’s publicly stated position on prediction trading platforms.
Trump has expressed on Truth Social that federal commodities regulators should maintain sole jurisdiction over prediction markets. He has criticized state-level enforcement actions using harsh language and expressed support for CFTC Chairman Mike Selig.
Federal commodities regulators have now initiated lawsuits against eight states pursuing action against prediction market companies, contending these states lack proper authority. Kentucky may face similar federal litigation.
Coleman, who serves as a Republican and previously held a federal prosecutor position under Trump, continues pursuing the case despite the political complications.
Polymarket responded that Kentucky’s lawsuit “runs counter to the CFTC’s established framework.” The platform indicated it anticipates resolving the allegations through judicial proceedings.
Courts Divided as Cases Mount
Judicial rulings have shown significant variation across jurisdictions. The same day Kentucky initiated its lawsuit, a federal judge in Michigan issued an unfavorable ruling for Polymarket, determining its sports event contracts fall outside federal commodities law protection.
Conversely, the Third Circuit Court of Appeals determined in April that New Jersey lacked authority to prohibit Kalshi from offering sports event contracts within that state.
A minimum of 17 additional states have pursued legal action against prediction market platforms. Legal analysts anticipate the matter will ultimately require resolution by the U.S. Supreme Court.
Kalshi and Polymarket had previously initiated litigation against Kentucky regarding the state’s 14.25% levy on prediction market transaction fees, characterizing it as unfairly discriminatory.
Donald Trump Jr., the president’s son, holds positions on Polymarket’s advisory board and serves as an adviser to Kalshi.
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