Utah Files 14 Criminal Charges Against Kalshi and Its Founders Over Prediction-Market Operations

Predictive-market trading volume keeps rising, and the fight between federal and state authorities over who regulates the sector has reached a fever pitch. Utah has now brought criminal charges against Kalshi and its two co-founders, the first time a prediction-market platform and its founding members have appeared together as criminal defendants. On October 20, Utah filed a civil lawsuit against Kalshi and affiliates, seeking as much as $60 million in ill-gotten gains. On October 27, the U.S. Commodity Futures Trading Commission filed in the U.S. District Court for Utah to block the state from enforcing its laws against Kalshi. On October 28, Utah Attorney General Derek Brown filed 14 criminal charges against Kalshi, CEO Tarek Mansour and COO Luana Lopes Lara: one second-degree felony, 12 third-degree felonies and one Class A misdemeanor. The charges follow a September investigation in which an undercover agent placed bets on Kalshi through a Utah-based IP address. The case could mark a shift in the two-year dispute over jurisdiction, the nature of event contracts and the regulatory boundaries of prediction markets from regulatory skirmishing into judicial adjudication. The 14 counts center on illegal gambling. One second-degree felony covers a pattern of illegal activity. The 12 third-degree felony counts accuse the defendants of promoting online gambling and correspond to the 12 bets placed by the undercover agent. One Class A misdemeanor covers generally promoting gambling. Under Utah law, a second-degree felony carries 1 to 15 years in prison; each third-degree felony carries up to five years. The pattern-of-unlawful-activity provision also lets courts impose fines proportional to illicit gains. Kalshi argues that the CFTC has exclusive jurisdiction. Utah asserts state-level authority over gambling. In February, Kalshi sued Utah Governor Spencer Cox, Attorney General Derek Brown and others, asking a federal court to rule that the Commodity Exchange Act preempts state anti-gambling laws and bars state enforcement. Utah, like Hawaii, has some of the strictest anti-gambling laws in the United States. The state bans casinos, lotteries and sports betting. The stance is heavily influenced by the Church of Jesus Christ of Latter-day Saints, which has more than 2 million members in Utah and views gambling as a vice that fuels addiction, selfishness and destructive behavior. Mormons hold significant political influence in the state, and nearly all high political offices are held by church members. Governor Cox has publicly criticized prediction markets and plans to amend the state constitution to include them in the legal definition of gambling. In August, U.S. District Judge Robert J. Shelby granted summary judgment for Utah, ruling that the Commodity Exchange Act does not preempt the state anti-gambling laws, particularly as they apply to contracts on sporting events. The court found that gambling has long fallen within the traditional regulatory domain of the states, that Congress did not intend to strip states of authority when it enacted the Dodd-Frank Act and that federal regulation and state enforcement are not inherently in conflict. In October, Brown filed a civil lawsuit in state court alleging that Kalshi and affiliates, including Susquehanna-related trading firms, operated illegal gambling in Utah. The suit seeks to halt their activities, recover an estimated $30 million to $60 million in profits from Utah-based accounts and stop operations. It also seeks to prohibit trading on contracts tied to elections, politics, culture, sports and five other categories of events, require integration with a court-approved geolocation service and classify Kalshi operations as a public nuisance. The suit claims that more than 30,000 Kalshi accounts in Utah have been active with substantial trading volume. The CFTC then entered the dispute. CFTC Chair Michael Selig filed a federal lawsuit against Utah and Brown, seeking to block Utah from enforcing its rules against CFTC-registered markets. It is the tenth such action the CFTC has taken against a U.S. state. The agency argues that the Commodity Exchange Act gives federal authority priority over swaps and designated contract market trading, and that state laws cannot supersede the federal system authorized by Congress. Brown countered in a declaration: "In Utah, gambling is illegal, whether you are placing bets, organizing gambling activities, or promoting gambling. Calling it a prediction market does not change its nature, and obtaining federal registration does not place a company above the law." The criminal case grew out of a September sting. The Office of the Utah Attorney General, led by Brown, and the Utah Bureau of Investigation, which handled undercover work, jointly led the state civil and criminal enforcement effort. Undercover agent Scott Eggerman opened a Kalshi account in September using a Utah residency identity, including a Utah address, phone number, bank account and IP address. Eggerman then placed 12 bets on NFL, MLB, MLS, NHL and college football games totaling $114. A key issue is that Kalshi charged transaction fees and allowed the activity after the August federal ruling. Utah argues that Kalshi profited from the activity and that the founders, as controlling persons, should be held personally liable. The case marks the first time in the United States that founders have been named criminal defendants, with potential felony charges and prison time, sharply raising liability risk for executives of prediction-market platforms. The timing is unusual. After the August federal ruling in Utah, Kalshi appealed to the Tenth Circuit. A request for an injunction pending appeal was denied, and the Tenth Circuit has not issued a final ruling on the merits. Public records show both sides filing briefs, with a Utah response brief expected in mid-to-late October. The state criminal prosecution therefore came before the federal appeal concluded, allowing Utah to use the federal court ruling and the timing gap to bring an enforcement action that is procedurally valid and factually clear. Kalshi called the charges a "crazy overreach" and accused Utah authorities of political motives. The company said: "We look forward to stopping this behavior in court, just as we did in Arizona." In May, a federal judge ruled that Arizona cannot enforce its gambling laws, criminal or civil, against CFTC-registered designated contract markets including Kalshi, finding that federal agencies have exclusive enforcement authority. That case has been appealed to the Ninth Circuit. Earlier circuit court rulings are mixed for Kalshi. Only New Jersey has ruled that Kalshi falls under CFTC jurisdiction and may operate. Nevada, Ohio and Tennessee have ruled that state regulators hold enforcement authority. Most states remain in litigation, leaving Kalshi in an "available but risky" position. On October 23, New York Attorney General Letitia James sued Kalshi, seeking $36 billion in damages and demanding that it shut down operations in the state. A New York federal judge had previously denied a Kalshi request to block state enforcement. States with restricted Kalshi operations include Michigan, which requires geolocation and imposes fines of up to $500,000 per day for violations; Nevada, where contracts on sports, elections and entertainment are subject to geolocation; Washington, which restricts sports, elections, political, entertainment, cultural and technology/science markets and retains only commodities, climate, economic and financial markets; and Massachusetts, which restricts sports contracts and where Kalshi is appealing. With the CFTC joining the regulatory battle and Utah escalating the dispute, Kalshi-related litigation now spans about 20 states. A final ruling may depend on a clear decision from the U.S. Supreme Court. The Trump family could again mobilize federal power: Donald Trump Jr. serves as a strategic adviser to Kalshi.