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The Commodity Futures Trading Commission has warned prediction market operator Kalshi that it could soon face charges, Politico reported on Tuesday, citing a person with direct knowledge of the probe. The agency is investigating whether Kalshi failed to properly notify it about dozens of new products, and its private notification to Kalshi suggests charges could come soon, Reuters reported.
Kalshi spokesperson Elisabeth Diana described the matter as a procedural error involving a handful of contracts, many of which were never live, and said the company is already addressing it. No charges have been filed, and Kalshi's contracts remain live, Startup Fortune noted. The reports do not say which contracts are at issue.
Kalshi does not ask permission before it lists most contracts. It self-certifies them, telling the CFTC that a product complies with the rules and then launching it, a route the company has relied on more heavily since its 2024 court win against the agency. Blockhead covered the regulatory fight in Escalating the Prediction Markets Fight, and the CFTC's plans for dedicated rules when it was drafting its first prediction market rules in June.
The agency has been signalling concern about the practice and the CFTC's market oversight division advised exchanges on July 24 against using a single broad certification to cover many contracts, a warning that reportedly named Kalshi and Polymarket, and that a June proposal would add a 90-day review window. A fine would be survivable, but a rule that makes every new contract wait in line would cut into Kalshi's plan to list products quickly.
The CFTC is also examining Polymarket, PANews reported. The inquiry concerns whether it complied with a 2022 settlement requiring it to block US users, according to other reports.
The warning contrasts with the CFTC's recent posture, which has been to protect prediction markets from the states. On November 5, the agency said federally regulated prediction markets generally cannot block traders by US state, and gave exchanges 30 days to lift such limits or explain why they cannot. That puts the deadline in early December.
The interpretation collides with court orders. Kalshi's sports contracts are blocked in Michigan, Nevada and Washington, and the company pulled them from Utah after the state filed criminal charges against Kalshi and its co-founders, which included 13 felony counts, Bitcoin.com reported. The CFTC sued Utah in October to stop it enforcing its gambling laws against federally regulated markets. On November 4, a federal judge ordered Kalshi to block sports contracts on the lands of California tribes that sued it, with the tribes due to supply maps on November 13.
Blockhead has followed the state-level fight since August, when the White House met prediction market executives days after Baltimore sued Kalshi and Polymarket.
Kalshi is also on the CFTC's side elsewhere. It has joined Coinbase and other firms backing the agency in the legal battle over perpetual futures on individual US stocks, CoinDesk reported. The broader perps dispute is covered in a previous Blockhead article, and so is the agency's retail plan.
Prediction markets have grown quickly. Polymarket disclosed that its annualized revenue has passed $1.8 billion, up from more than $1 billion in June, and that its US platform handled more than $14.5 billion of notional volume in October, KuCoin's daily market report said. Kalshi was reported in September to be in talks to raise $1 billion at a $40 billion valuation. A charge from its main federal regulator would complicate that raise if it is still under way, and would hand states a fresh argument, since Kalshi's defense in court is that federal law pre-empts them.
The first signal is whether the CFTC files, and what penalty or remedy it seeks. The second is the early-December deadline for exchanges to end state geoblocking, and how Kalshi responds to the court orders it faces. The third is the Polymarket inquiry, and whether the agency's focus on how contracts are filed leads to a new rule for the whole sector.
