Kentucky escalates fight over prediction markets, suing Kalshi, Polymarket and brokerages Kentucky Attorney General Russell Coleman has sued prediction-market operators Kalshi and Polymarket — and in the Kalshi case named brokerages Coinbase, Robinhood and Webull — alleging the platforms are effectively running unlicensed sportsbooks in the state. The complaints, filed in Franklin Circuit Court, say the platforms offered markets tied to game winners, point spreads and player statistics without the Kentucky gaming licenses required for wagering. “Kalshi and Polymarket are operating illegal sportsbooks in Kentucky and breaking our laws,” Coleman said, adding that the companies and their “legal fictions don’t pass the sniff test.” What Kentucky is arguing - The state contends the products, even when labeled “event contracts” or prediction markets, meet Kentucky’s legal definition of sports wagering because users can place trades that resemble money lines, spreads and prop bets. - Regulators also accuse the platforms of failing to provide required consumer protections for people with gambling problems, protections Kentucky says licensed operators must include. How the companies respond - Kalshi and Polymarket have long argued their products fall under federal commodities law and CFTC oversight, not state gambling statutes. Kalshi told reporters the CFTC — not states — is its regulator. Polymarket said it will contest Kentucky’s claims in court, arguing the state action conflicts with the CFTC’s framework for prediction markets. - Those federal-versus-state jurisdiction fights have produced mixed court results so far: the Third Circuit sided with Kalshi in a New Jersey case, while other courts have allowed state gambling suits to proceed. A broader regulatory sweep - Kentucky’s lawsuit is part of a wider push by U.S. states against prediction markets and sports-linked event contracts. Regulators in Montana, Nevada, Utah, Iowa, Illinois, Ohio, Tennessee, New York, New Jersey, Connecticut and Maryland have issued cease-and-desist letters or taken enforcement steps. Separate lawsuits have been brought in Washington, Arizona, New Mexico, Wisconsin, Michigan, Massachusetts and Kentucky. - The CFTC has sometimes pushed back, suing states and asserting federal authority over event contracts traded on exchanges it regulates. Tax fight runs parallel - Kentucky is also facing a separate legal challenge to a new 14.25% tax on prediction-market transaction fees. A coalition that includes Kalshi, Crypto.com and Polymarket sued, saying the tax unfairly targets federally regulated markets and disadvantages prediction platforms relative to some state-licensed gambling businesses. That tax case is distinct from the recent gambling complaints. Business and compliance context - The legal pressure comes as prediction platforms expand product lines and volumes. Kalshi recently launched crypto-linked perpetual futures and reported more than $5.5 billion in volume within two weeks of that product’s debut. - At the same time, firms are increasing compliance measures: Kalshi has partnered with StarCompliance to help financial firms monitor employee trading in prediction markets. Why it matters The outcome of Kentucky’s cases — and parallel disputes nationwide — could determine whether prediction markets must follow state gambling rules or operate under federal commodities regulation. That decision will affect the regulatory obligations, consumer protections, tax treatment and distribution channels for these fast-growing products, as well as which intermediaries (brokers, exchanges) can lawfully give customers access. Read more AI-generated news on: undefined/news