Prediction market platforms have spent the past year fighting with states over who gets to regulate them. Now firms like Kalshi and Polymarket are facing a different kind of threat in Illinois and other states: plaintiffs’ lawyers armed with centuries-old gambling laws.
“There are state-level gambling laws that regulate the kind of conduct that Kalshi is engaged in,” argues attorney Russell Busch, who filed a federal lawsuit in Illinois against Kalshi in January. “And Kalshi is masquerading as a commodities future market regulated by the CFTC to try and say that none of those state gambling laws apply.”
Busch represents four Cook County residents who each lost more than $50 on the site after learning about it through social media and video gaming. Their lawsuit alleges that Kalshi is in violation of the Loss Recovery Act, an Illinois law passed to discourage illegal gambling in 1819 — one year after Illinois became a state.
Kalshi’s conduct, the lawsuit states, is “unfair, immoral, oppressive and offensive to public policy, particularly Illinois’s strong public policy regulating and restricting gambling activity.” The lawsuit is seeking class-action status on behalf of at least 100 people and damages in the case could exceed more than $5 million, according to court records.
Separately, a Tampa investment firm is funding a string of federal lawsuits including one in Illinois against Kalshi as well as its partners Robinhood and Webull that targeted their alleged violations of state gambling laws. Veridis Management is supporting copycat lawsuits under laws similar to Illinois’ in Georgia, Kentucky, Massachusetts, Ohio and South Carolina.
According to its website, the investment firm funds complex litigation targeting “assets with $5 million or more of potential value.” Its Illinois lawsuit notes that Kalshi has 2 million users nationwide and the platform traded $1 billion on 3.4 million sports bets in its first five months offering sports betting, according to the lawsuit.
Messages left for the firm, Polymarket and Kalshi were not returned.
In its Illinois case, Veridis’ plaintiff, Illinois Recovery LLC, is suing Kalshi as well as Robinhood and Webull, which use the Kalshi platform. It cites cease-and-desist letters the Illinois Gaming Board sent to Kalshi and Robinhood that referred to its business as “illegal gambling.”
A Robinhood spokesperson said in a statement that its event contracts are regulated by the CFTC “allowing retail customers to access prediction markets in a safe, compliant and regulated manner.”
Webull did not respond to messages seeking comment.
The lawsuit gives a history of the Illinois gambling law, noting that it’s modeled after a British law passed by Queen Anne in 1710 that “deputized the public to serve as private Attorneys General.”
Meant to discourage illegal gambling, the Loss Recovery Act allows that a gambler who lost $50 or more on an illegal bet could sue the entity that made the bet within six months to recover the losses. After six months, anyone can sue for three times the amount of the gambler’s losses.
The lawsuit breaks down the business of prediction markets, alleging that similar to legal gambling operations, they rely on “market makers” to provide cash, such as the Philadelphia-based investment firm Susquehanna, to keep the prediction markets liquid.
These firms buy bets that are undervalued and sell ones that are overvalued, according to the lawsuit and “drive event-contract prices to an equilibrium reflecting all publicly available information.”
Susquehanna, which has an office in Chicago, was the first external “market maker” that Kalshi partnered with, the lawsuit states.
“In exchange, they receive all sorts of financial and non-financial” compensation, the lawsuit states. “In that way, all defendants work in concert to make illegal, unregulated gambling available within the state.”
Susquehanna did not return messages for comment.
Kevin Frankel has followed the legal saga as a partner at national law firm Benesch Friedlander Coplan & Aronoff, based in Ohio.
He said the prediction market’s gambit boils down to a question of state or federal authority that eventually the United States Supreme Court will have to answer, which will either imperil or legitimize the operations of the prediction markets.
“But at the end of the day, if these private lawsuits are successful, the damages could pose an existential threat to prediction markets,” Frankel said. “They may swallow any profits produced by the markets, rendering them insolvent.”
