Federal court pauses Connecticut enforcement action against Kalshi prediction market

• US District Judge Vernon Oliver orders Connecticut to halt cease-and-desist enforcement pending preliminary injunction hearing.
• Connecticut Department of Consumer Protection accused Kalshi, Robinhood and Crypto.com of unlicensed sports gambling.
• The hearing in February 2026 will examine whether federal commodities law preempts state gambling regulations.

A federal court has temporarily blocked Connecticut from enforcing gambling laws against prediction market platform Kalshi. The court ordered state regulators to refrain from enforcement action whilst evaluating the company’s request for preliminary protection.

The decision marks the latest development in an escalating nationwide dispute over whether federally regulated event contracts fall under state gambling jurisdiction.

US District Judge Vernon Oliver issued an order on Monday instructing Connecticut’s Department of Consumer Protection (DCP) to pause enforcement of its cease-and-desist directive against Kalshi, according to multiple reports.

The temporary pause remains in place pending the court’s decision on the company’s motion for a preliminary injunction. Oral arguments are scheduled for 12 February 2026.

Connecticut’s DCP issued cease-and-desist letters on 2 December to Kalshi, Robinhood Derivatives and Crypto.com, accusing the platforms of offering unlicensed online sports gambling through event contracts.

The agency demanded that platforms immediately stop offering sports event contracts to Connecticut residents and allow users to withdraw funds. Officials warned that non-compliance could lead to civil penalties or criminal charges.

Federal preemption argument

Kalshi filed its lawsuit against Connecticut one day after receiving the cease-and-desist notice. The company argues that state gambling regulations cannot apply to federally regulated derivatives exchanges.

The platform operates as a Commodity Futures Trading Commission-designated contract market. It maintains that Congress granted exclusive authority over commodity derivatives to the CFTC.

The platform’s complaint states:

“Connecticut’s attempt to regulate Kalshi intrudes upon the federal regulatory framework that Congress established for regulating derivatives on designated exchanges. The state’s efforts to regulate Kalshi are both field-preempted and conflict-preempted.”

The company contends that if states can override CFTC jurisdiction, it would create a fractured regulatory landscape. This would prevent federally regulated exchanges from operating consistently across the country.

Kalshi’s legal argument relies heavily on federal preemption. It points to the Commodity Exchange Act and the Dodd-Frank Act as establishing exclusive federal oversight of event contracts traded on designated exchanges. The platform emphasises that the CFTC allowed its sports-outcome contracts to take effect without review earlier this year.

Outside counsel for Kalshi at Wilmer Cutler Pickering Hale and Dorr stated:

“Connecticut cannot override that federal regulatory scheme by relabelling federally authorised trading activity as ‘gambling’.”

Connecticut claims unlicensed wagering

Connecticut regulators argue that sports-related contracts offered through prediction market platforms effectively amount to sports betting, requiring state authorisation.

The DCP contends these products bypass the state’s technical standards and regulatory framework. This leaves consumers exposed without proper protections.

DCP Commissioner Bryan T. Cafferelli said in a statement:

“Only licensed entities may offer sports wagering in the State of Connecticut. None of these entities possess a licence to offer wagering in our state, and even if they did, their contracts violate numerous other state laws and policies, including offering wagers to individuals under the age of 21.”

DCP Gaming Director Kris Gilman added:

“These platforms are deceptively advertising that their services are legal, but our laws are clear. They are also operating outside of a regulatory environment, posing a serious risk to consumers who may not realise wagers placed on these illegal platforms offer no protections for their money or information. A prediction market wager is not an investment.”

Only three gaming platforms, DraftKings, FanDuel, and Fanatics, are licensed to offer sports wagering in Connecticut. Participants must be at least 21 years old to engage in online or in-person gaming or sports wagering.

February hearing scheduled

Judge Oliver’s order establishes a clear timetable for the case’s progression. Connecticut must file its response to Kalshi’s preliminary injunction motion by 9 January 2026. Kalshi will then submit additional arguments by 30 January 2026. Oral hearings are expected in mid-February.

The temporary order does not resolve the underlying jurisdictional question. However, it prevents immediate disruption to Kalshi’s operations whilst the court conducts a full review. If the preliminary injunction is granted, Connecticut would be barred from taking enforcement action for the duration of the lawsuit. This process could extend beyond 2026.

The February hearing represents a pivotal moment that could influence how other states approach similar enforcement efforts. Legal observers note the court’s decision may shape the regulatory framework for prediction markets operating across the United States.

Nevada setback weakens defence

Kalshi’s federal preemption defence recently suffered a blow in Nevada. A federal judge ruled the platform must comply with state gaming regulations.

US District Judge Andrew Gordon held that sports-contest outcomes do not qualify as “events” in the sense required for federal commodities law to preempt state oversight.

In his 29-page ruling issued on 25 November, Gordon wrote that Kalshi’s interpretation “would require all sports betting across the country to come within the jurisdiction of the Commodity Futures Trading Commission (CFTC)” rather than state and tribal gaming regulators. “That interpretation upsets decades of federalism regarding gaming regulation, is contrary to Congress’ intent … and cannot be sustained.”

The Nevada ruling has emboldened regulators in other jurisdictions pursuing similar challenges. The decision found that Kalshi’s products fall squarely within state gaming rules rather than federal commodities oversight. This contradicts the platform’s core legal strategy.

Despite the setback, Kalshi withdrew its Nevada licence application rather than comply with state gaming regulations. The company chose to exit the market rather than accept state jurisdiction over its operations.

Multi-state legal battles

The Connecticut case represents one front in a broader regulatory battle spanning multiple jurisdictions.

Massachusetts Attorney General Andrea Joy Campbell filed a lawsuit against Kalshi on 12 September in Suffolk Superior Court. She argues the platform amounts to sports wagering disguised as event-contract trading.

“Sports wagering comes with significant risk of addiction and financial loss and must be strictly regulated to mitigate public health consequences,” said Attorney General Campbell in the official press release.

“This lawsuit will ensure that if Kalshi wants to be in the sports gaming business in Massachusetts, they must obtain a licence and follow our laws.”

The Massachusetts filing raised age-related concerns. It noted that state-approved sportsbooks cannot accept bets from individuals under 21. Kalshi allows participation beginning at 18.

Kalshi has filed lawsuits this year against regulators in New Jersey, Maryland and Ohio. The platform accuses each of exceeding their authority over a federally regulated marketplace. The company previously secured a preliminary injunction in New Jersey federal court in April.

The court found that CFTC’s exclusive jurisdiction likely preempts state gaming laws as applied to designated contract markets. The company also won a preliminary injunction battle against California tribes seeking to block its operations on tribal lands.

Explosive growth drives scrutiny

The legal disputes emerge as Kalshi experiences explosive growth. The platform launched nationwide event contracts in January 2025, leading to record trading volumes.

According to Token Terminal data, Kalshi topped $1bn in monthly trading volume and captured majority market share in the prediction markets sector. The platform logged $4.54bn in trading volume in November 2025, surpassing its previous record of $4.49bn in October.

The momentum attracted major investment. Kalshi announced a $1bn funding round on 2 December 2025 that valued the company at $11bn.

The round was led by Paradigm, with participation from Sequoia, Andreessen Horowitz, Meritech Capital, IVP, ARK Invest, Anthos Capital, CapitalG and Y Combinator. This more than doubled the company’s $5bn valuation from a $300m funding round in October 2025.

Tarek Mansour, CEO of Kalshi, stated:

“Kalshi is replacing debate, subjectivity, and talk with markets, accuracy, and truth. We have created a new way of consuming and engaging with information.”

The rapid expansion has drawn increasing scrutiny from state authorities concerned about the proliferation of sports-themed markets operating outside traditional gambling frameworks.

Robinhood and Crypto.com, which also received Connecticut cease-and-desist notices, have reportedly entered into agreements with state regulators to avoid enforcement pending appeal.

Connecticut officials note that Kalshi has refused to halt its activities in the state. Its competitors have agreed to cooperate with regulators.

Class action lawsuit filed

Beyond state regulatory challenges, Kalshi faces a nationwide class-action lawsuit filed on 27 November in the US District Court for the Southern District of New York. The plaintiffs claim the platform acts like an illegal sports betting site. They argue that Kalshi’s yes-or-no event contracts mirror traditional sports bets, including moneylines, point spread,s and over/under wagers.

The complaint states:

“By operating unlicensed sports betting, Kalshi has violated gambling laws, engaged in illegal deceptive activity, and unjustly enriched itself at the expense of tens of thousands of consumers.”

The lawsuit contends the company skips consumer protections and does not hold necessary state licences. The class action represents an additional legal front that could shape how courts view the relationship between event contracts and traditional gambling products. Seven named plaintiffs seek recovery of the money they wagered, along with the possibility of triple the damages.

A Kalshi spokesperson told Front Office Sports:

“This lawsuit demonstrates many fundamental misunderstandings about how federally regulated DCMs operate. Anyone who understands how Kalshi works will see it for what it is—meritless fiction.”

The central question facing courts is whether Connecticut and other states can enforce gambling laws against platforms operating under federal derivatives regulation. Alternatively, the question is whether the Commodity Exchange Act establishes exclusive federal jurisdiction that preempts state authority.

The answer will determine the regulatory framework for an emerging industry that blurs traditional boundaries between financial markets and gambling.