Kalshi Sued Over Refusing to Pay Out Prediction Market After Iran Leader's Death

Prediction market platform Kalshi is facing a class action lawsuit in California over its resolution of a market related to the unseating of Iranian leader Ayatollah Ali Khamenei. The suit alleges that Kalshi ran a "predatory scheme to exploit retail consumers" by not paying out expected contract values for a market on Khamenei's removal.

Lawsuit Allegations

Plaintiffs claim they expected contracts for Khamenei being out by March 1 to resolve to "yes" and pay $1.00 per share, especially after Khamenei's death was confirmed on February 28. However, Kalshi utilized a "death carveout provision" in its rules. This provision dictated that if the Supreme Leader left office solely due to death, the market would resolve based on the last traded price, not a $1.00 payout for correct predictions.

The lawsuit states that plaintiffs and other class members who correctly predicted the outcome did not receive the promised amounts. Instead, they received "arbitrary amounts unilaterally determined by [Kalshi] that were significantly lower than their respective contract values." The plaintiffs allege that this rules clause was not adequately disclosed at the time of trading.

Kalshi CEO's Response

Kalshi CEO Tarek Mansour addressed the situation on X, stating that the platform does not list markets directly tied to death. He explained that when potential outcomes involve death, Kalshi designs rules to prevent profiting from death, which is what occurred in this instance. Mansour acknowledged that while the caveat was intended to be clear in the rules and market page, there is room for improvement in user experience and rule surfacing.

Following the social media pushback on February 28, Kalshi reimbursed all fees and net losses, with Mansour emphasizing that "no trader lost money" on the market. The plaintiffs in the case held approximately $259.84 worth of positions in the market, which saw over $54 million in total trading volume.

Legal Demands and Company Stance

The plaintiffs are seeking compensatory damages for the full value of "yes" payouts and punitive damages to punish and deter similar conduct. In response, Mansour reiterated on X that Kalshi stands by its principles and the law. He stated that the company did not deviate from its market rules, which clearly indicated that death would not resolve the market to "Yes." He also highlighted that Kalshi's rules prevented a "death market" where traders could directly profit from death and that the company made no money on the market.

Kalshi recently raised funds at an $11 billion valuation, reflecting the growing popularity and trading volumes in prediction markets.