Kalshi Faces Potential Class Action Threat After Iran Supreme Leader Market Fallout
Kalshi faces potential class action exposure after settling its Iran Supreme Leader market at the last traded price, prompting regulatory and insider trading scrutiny.
Former New York legislator Ben Geller is organizing a potential class-action lawsuit following the controversy over Kalshi’s settlement methodology for markets on Iran’s Supreme Leader Ali Khamenei. In an X post on Monday, he said he had hired a legal team and PR firm to pursue legal action, adding that “tens of thousands” of users were impacted.
In a separate post on Sunday, Geller alleged fraud and market manipulation. He also said he plans to target individual executives and company staff personally, not just Kalshi itself.
Pointing to the possible merits of such a case, Bloomberg’s Matt Levine argued that the CFTC’s Rule 40.11, which prohibits war or assassination markets, may effectively be unenforceable. He noted that the same rule supposedly bans sports betting, yet the CFTC explicitly endorsed Kalshi offering sports-related contracts.
Levine said that selective enforcement of the regulatory framework undermines Kalshi’s claim that it strictly follows the rules.
He further explained that if traders had truly understood Kalshi’s death carveout provision, the market would have traded down, not up, when reports of Khamenei’s death surfaced. According to Levine, that dynamic could support an argument for a “misleading market design.”
What Triggered the Controversy
Prediction market companies like Polymarket and Kalshi offered markets on when Iran’s Supreme Leader, Ali Khamenei, would be out of power.
Iranian authorities announced his death on March 1, and many expected the market to pay out accordingly. However, Kalshi drew criticism for saying its contracts focus on leadership changes, such as removals or resignations, not deaths. The company claimed that it made this clear before reports of Khamenei’s death circulated.
Under Kalshi’s published contract rules for leadership markets, the payout criterion includes resignation or other departure from office, but explicitly excludes deaths from triggering a standard $1.00 “Yes” resolution.
The rules state that if a leader leaves office solely because they have died, the market will resolve based on the last traded price before the death, rather than automatically paying out $1.00 to “Yes” holders.
Kalshi resolved the market in accordance with that rule, using the last traded price before confirmation of Khamenei’s death. As a result, no one received a full payout based solely on the death event.
The company refunded all fees and compensated traders who bought positions around his death. Even so, widespread outrage continued over what critics described as unclear communication and a confusing application of the rules.
Attempts to Clarify the Situation
Kalshi Co-Founder and CEO Tarek Mansour posted on X to reiterate that Kalshi follows a core policy of not profiting from death. The company states that no market can directly settle based on someone’s death. He emphasized that the contract was phrased as “Khamenei to cease as Supreme Leader,” not “Khamenei dies.”
On March 2, Mansour followed up with another X post, using more detailed explanations and legal language than before. He stressed that Kalshi did not change the rules, as it had included the death exception from day one.
Mansour shared a screenshot from the CFTC to support that point. He explained that the green highlight added to the market was meant to emphasize the issue, not change the rules. He argued that ignoring the rules and paying ‘Yes’ holders would have cheated ‘No’ holders and completely destroyed trust in the platform.
The 29-year-old noted that no trader lost money, as the company refunded all fees and reimbursed $2.2 million worth of trading losses. In short, Kalshi did not profit. He concluded by acknowledging that the company communicated its rules poorly and promised improvements going forward.
Broader Political and Regulatory Fallout
Some Kalshi users said they will never use the platform again following the incident. Others noted that Kalshi continued promoting the market while unconfirmed reports of Khamenei’s death were circulating.
Critics argue that encouraging trading under those circumstances, knowing the death would trigger a last-price resolution rather than a standard $1.00 payout, raises serious concerns.
Polymarket ran a similar market and resolved it in favor of ‘Yes’. It offered the parallel market only on its international site, which is not subject to CFTC regulation or the death rule. By contrast, Kalshi faced backlash, brought in senior executives to clarify public rules, reimbursed traders, and sought to manage reputational fallout.
Critics argue that prediction sites should not offer markets on violent geopolitical events. Lawmakers are questioning whether such events create opportunities to misuse sensitive information for profit, and some members of Congress are pushing for tighter oversight.
This is not the first time confusing terms on a prediction site have created uncertainty. After U.S. forces captured Venezuelan President Nicolás Maduro in January, Polymarket users claimed that the mission counted as U.S. forces being present in Venezuela.
However, Polymarket said it would only settle the market if the U.S. attempted to establish control over part of Venezuela.
Possible Insider Trading on the Strikes
There are also rumors of insider trading related to the weekend’s action in Iran. Analysts disclosed clusters of accounts on prediction market platforms that placed significant wagers on the Iran strike in the days before it occurred. Many observers believe individuals used insider knowledge.
Blockchain data visualization firm Bubblemaps identified six accounts that reportedly generated about $1.2 million in profits on Polymarket from bets placed just hours before the Saturday bombings:
One user placed a $26,000 bet and won over $200,000 in the hours before the strikes. Another account earned more than $553,000 just two hours before the strikes. A separate January bet predicting that Israel or the U.S. would strike Iran first netted $4 million.
In an X post, Democratic Senator Chris Murphy alleged that people close to President Trump “were profiting from the conflict.” He added that he plans to introduce legislation “ASAP.”
In an email to Reuters, White House spokesperson Davis Ingle said the Trump administration is acting in “the best interest of the American people.”
Previous Maduro Capture Scandal
This is not the first time potential insider trading involving government-related events has surfaced. Shortly after Maduro’s January capture, reports revealed that someone profited about $410,000 by placing bets on Polymarket on his ousting just hours before the secret mission.
Rep. Ritchie Torres responded by introducing the Public Integrity in Financial Prediction Markets Act of 2026. The measure would prevent politicians, federal elected officials, and executive branch employees from trading prediction market contracts tied to political outcomes or government policy.
More Negative Press
Kalshi explicitly bans insider trading, while Polymarket does not outline clear rules on the issue.
This contrast prompted a coalition of prediction market operators, excluding Polymarket, to differentiate themselves from unregulated platforms. In a full-page ad in the Washington Post on Jan. 28, the coalition highlighted the differences between regulated and unregulated platforms.
Many lawmakers had already criticized prediction markets for their approach to sports betting. Now, war-related markets and insider trading allegations are generating additional negative headlines, further damaging the industry’s image among lawmakers and regulators.
The CFTC has remained quiet on the matter, and its head, Michael Selig, has not commented.
With a class action lawsuit possibly gathering pace and regulatory consistency now under public scrutiny, the controversy extends beyond a single market dispute. At stake is not only Kalshi’s market design, but also how far the CFTC is willing to tolerate ambiguity in politically sensitive contracts.
The outcome could shape how prediction markets handle politically sensitive events and whether lawmakers and regulators move to tighten oversight of an industry already walking a fine line between financial innovation and political risk.
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