Utah Draws a Hard Line
Utah's Attorney General Derek Brown has filed criminal charges against KalshiEX LLC, a prominent prediction market platform, and its co-founders Tarek Mansour and Luana Lopes Lara. The allegations include one count of pattern of unlawful activity—a second-degree felony—and 12 counts of online gambling promotion, each classified as a third-degree felony. The charges stem from Kalshi's operations in the state, where gambling is constitutionally banned.
In September, a special agent from the Utah State Bureau of Investigation placed 12 wagers on sports events via Kalshi while physically located in Utah. These bets included both NFL and college games. Prosecutors allege that Kalshi profited by charging fees on each wager placed by Utah residents, directly contravening state law.
CFTC Greenlights, Utah Pushes Back
While Utah authorities moved forward with criminal prosecution, federal regulators have taken a different approach to prediction markets like Kalshi. In March, the Commodity Futures Trading Commission (CFTC) granted no-action relief to Phantom, allowing it to integrate Kalshi-powered prediction markets for eligible U.S. users without registering as an introducing broker—subject to certain conditions. This regulatory greenlight enabled Phantom to launch a Predict tab for users in select states, offering event contracts such as short-term Bitcoin price predictions that settle every 15 minutes.
Despite this federal approval, availability of these markets still varies by state due to local legal restrictions, highlighting the ongoing tension between federal oversight and state-level enforcement.
Sports Bets Trigger Felony Counts
The most serious allegations against Kalshi revolve around sports betting activity documented within Utah’s borders. According to decrypt.co, an undercover agent successfully placed 12 separate bets through the platform in September. Each transaction allegedly generated revenue for Kalshi through service fees—an arrangement prosecutors argue constitutes illegal gambling promotion under state law.
Utah’s constitution leaves little room for ambiguity: all forms of gambling are explicitly prohibited.
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State-Feds Clash Over Market Rules
This case is unfolding against a backdrop of conflicting judicial opinions about whether states can enforce their own anti-gambling laws on federally regulated prediction markets. In August 2023, U.S. District Judge Robert Shelby ruled that federal law does not override Utah’s right to police gambling within its borders—a ruling that Kalshi is currently appealing to the Tenth Circuit. Notably, other circuit courts have issued differing opinions in recent months: the Third Circuit weighed in during April, while the Sixth and Ninth Circuits delivered rulings in August and September respectively.
The legal patchwork creates uncertainty not only for Kalshi but also for similar platforms seeking clarity on where federal regulation ends and state authority begins.
Crypto Contracts, Old Laws Collide
Kalshi’s business model has demonstrated significant traction in the digital asset space: over the 30 days ending October 27th, the platform recorded $10.8 billion in crypto contract volume—a 19.6% increase from the previous period. Yet this headline number is complicated by legal headwinds; while trading activity grows nationally, some states like Utah are doubling down on enforcement rather than loosening restrictions.
Meanwhile, Phantom’s integration with Kalshi uses CASH stablecoin balances for funding trades and relies on Kalshi for account verification and execution. However, as Monday’s CFTC lawsuit against Utah underscores, even federally sanctioned platforms remain vulnerable when states assert their own laws over event contracts involving chance or skill.
It remains uncertain how long this regulatory standoff will last or what precedent it might set for future prediction market operators navigating America’s fragmented legal landscape.
What the market is waiting for
The market is awaiting the outcome of Utah's criminal case against Kalshi and its co-founders, including CEO Tarek Mansour and COO Luana Lopes Lara, as the charges—one count of pattern of unlawful activity, 12 counts of online gambling promotion, and one count of gambling promotion—could immediately impact Kalshi's ability to operate in Utah if upheld; whether federal law preempts Utah’s enforcement remains unclear after the Tenth Circuit denied Kalshi’s injunction request in September.