Utah Hits Kalshi With 14 Criminal Counts as Federal Regulator Sues the State Back

Utah Hits Kalshi With 14 Criminal Counts as Federal Regulator Sues the State Back

Fourteen counts, twelve wagers, one undercover account

Utah Attorney General Derek Brown filed 14 criminal charges on Oct. 28 against KalshiEX LLC and its co-founders, CEO Tarek Mansour and COO Luana Lopes Lara, accusing the prediction-market platform of promoting illegal online gambling. The charges, filed in 3rd District Court in Salt Lake County, comprise one second-degree felony count of pattern of unlawful activity, 12 third-degree felony counts of online gambling promotion, and one Class A misdemeanor count of general gambling promotion. Charging papers say a special agent of the attorney general's office, Scott Eggerman, opened an undercover Kalshi account with a Utah residential address, phone number and locally issued debit card, then placed 12 wagers on sporting events in September, including an NFL game between the Cowboys and the Giants and an NHL game between the Mammoth and the Avalanche. Prosecutors say he staked a total of about $114.87 over two weeks and lost $25.10, with each bet supporting one promotion count.

A total gambling ban meets a federally registered exchange

Utah is one of the few states that ban all forms of gambling, a prohibition dating to the 1896 state constitution. "Gambling is illegal in Utah, whether you place the bet, run the game, or promote it. Calling it a 'prediction market' doesn't change what it is, and being federally registered doesn't put a company above the law," Brown said. "A federal court has already ruled that Utah's gambling laws apply to Kalshi. Kalshi kept taking bets from Utahns anyway." The case appears to be the first time executives of a CFTC-registered prediction-market operator have faced personal criminal charges in the nationwide fight over event contracts.

A civil suit seeking up to $60 million came first

The criminal case escalates a civil lawsuit Utah filed last week seeking to claw back what it calls illegally obtained profits. The state alleges that Utah accounts placed more than 3.059 billion wagers on Kalshi, at least 1.1 percent of all wagers, involving about 32,000 residents. Because Kalshi takes a one- to two-cent fee per wager, the state estimates the company earned between $30.5 million and $61.1 million from Utah accounts, and seeks recovery of up to roughly $60 million. Kalshi rejects the premise, maintaining that its event contracts are federally regulated derivatives beyond the reach of state gambling law.

The CFTC sued Utah one day earlier

One day before the criminal charges, on Oct. 27, the Commodity Futures Trading Commission sued Utah and Brown in federal court in Utah, seeking to block the state from enforcing its gambling laws against Kalshi and investigating the exchange. The agency argues that Congress gave it exclusive jurisdiction over commodity futures, options and swaps on federally regulated exchanges, and that Utah's enforcement interferes with a comprehensive federal scheme and the Supremacy Clause. Forcing exchanges to cut off Utahns would also violate a federal impartial-access rule, the CFTC says. It is the agency's 10th such suit against a state. The federal government is now litigating in a state where it has already lost: in February Kalshi sued Gov. Spencer Cox and state officials claiming the Commodity Exchange Act preempts Utah law, but on Aug. 4 U.S. District Judge Robert J. Shelby granted summary judgment to Utah, calling Kalshi's reading "implausible." The 10th U.S. Circuit Court of Appeals denied a stay pending appeal on Sept. 8.

Arizona's failed prosecution is the industry's talking point

Utah is not the first state to try criminal law. Arizona filed criminal charges against Kalshi in March, the first-ever criminal prosecution of a CFTC-registered operator, but a judge blocked the case in April. A Kalshi spokesperson called Utah's move "a crazy overreach; Utah is clearly playing politics," adding: "We look forward to putting a stop to this in court, just like we did in Arizona." Federal appeals courts are split: the Third Circuit has backed Kalshi's broad preemption reading, while the Sixth Circuit unanimously held that sports event contracts fall outside the swap definition. Suits are now open in four circuits, former CFTC Chair Gary Gensler and former Sen. Chris Dodd have filed briefs backing the states, and a New Jersey case awaits a possible Supreme Court petition that could settle whether prediction markets answer to Washington or the states.

State arraignment and Tenth Circuit appeal run on two tracks

Two tracks now run in parallel: arraignment and pretrial fights over the 14 counts in Utah state court, where felony convictions can carry prison time, and the federal fights over preemption, including the CFTC's new suit and Kalshi's Tenth Circuit appeal of the Shelby ruling. For Utah users, enforcement without a stay could mean losing access to sports contracts on Kalshi and Polymarket-style platforms. For the industry, the Utah showdown is the sharpest test yet of whether event contracts are national financial products under one federal regulator or gambling products subject to 50 state codes. Most observers expect the U.S. Supreme Court to have the final word.