Kalshi Sues Rhode Island Before State Files Lawsuit Against Kalshi and Polymarket

Kalshi filed a preemptive federal lawsuit against Rhode Island officials on Thursday, seeking to block anticipated enforcement action against its platform. Hours later, the state sued Kalshi and Polymarket in state court, arguing that the companies’ sports-related event contracts constitute unlawful sports betting under state law.

Kalshi Says Rhode Island Is Threatening Federally Regulated Markets

In its complaint, Kalshi stated that Rhode Island officials made clear during a May 20 meeting that they believed the company’s event contracts violated state gaming law. Officials allegedly refused to provide assurances that enforcement action would not follow.

According to the complaint:

When Kalshi sought assurances that the Rhode Island Attorney General did not intend to bring an enforcement action against Kalshi, the Attorney General made clear that Kalshi would not receive any advanced notice before the state filed an enforcement action against the company.”

Kalshi argued this left “little doubt” Rhode Island intended to pursue enforcement action unless the company stopped offering event contracts in the state.

Kalshi also pointed to previous public comments from Rhode Island Lottery Director Mark Furcolo. Furcolo reportedly described the state’s investigation into prediction markets as “very active.”

The company further argued that Rhode Island’s actions threaten the exact “patchwork of state-by-state regulation Congress sought to prevent.”

In its complaint, Kalshi framed prediction markets as legitimate financial instruments with hedging and informational value. It cited Federal Reserve research and institutional use cases throughout the filing.

For example, the Federal Reserve paper concluded that:

Kalshi markets provide a high-frequency, continuously updated, distributionally rich benchmark that is valuable to both researchers and policymakers.”

Kalshi said it intends to seek emergency injunctive relief.

The complaint mirrors similar preemptive lawsuits Kalshi previously filed against Utah and Iowa.

Rhode Island Says Event Contracts Are Illegal Sports Betting

A few hours after Kalshi’s complaint, Rhode Island Attorney General Peter Neronha announced a separate lawsuit against the company and Polymarket in Rhode Island Superior Court.

The state argues that sports-related event contracts offered by the companies are effectively sports betting products subject to Rhode Island gambling laws.

There is no substantive difference between sports betting and ‘events contracts’ in this context; Kalshi and Polymarket know that, and we know that,” Neronha said.

The Attorney General’s office alleged that the platforms’ use of ‘yes’ or ‘no’ positions tied to sports outcomes effectively structures them like sportsbooks.

Rhode Island further argued that Kalshi intentionally incorporates gambling-style mechanics into its platform. According to the press release:

Kalshi prompts users to gamble with leaderboards and constant updates on how other users are placing bets. Such design choices have long been known to encourage addictive gambling behavior.”

The state also pointed to Kalshi’s own prior statements and litigation arguments:

Kalshi has repeatedly referred to its products as ‘betting’ and ‘wagering’ both in marketing and litigation.”

Rhode Island argued that prediction markets threaten state gambling revenue. According to the release, “RILOT has already observed an impact from the expansion of prediction markets, with bets decreasing 8% from 2024 to 2025.”

Neronha also tied the lawsuit to responsible gambling concerns.

While these private companies continue to profit exponentially off hard-working people, the State’s third largest revenue stream is detrimentally affected,” Neronha said.

“Further, we allege that these platforms offer those susceptible to problem gambling unfettered access, increasing the potential for the devastating effects of gambling addiction.”

The lawsuit seeks declaratory relief, a permanent injunction barring sports-related event contracts in Rhode Island, and restitution and disgorgement.

Next Procedural Fight Likely to Focus on Federal Removal

The dueling lawsuits set up another procedural battle similar to those already unfolding across several states.

One likely next step is for Kalshi to file a motion to remove the state lawsuit to federal court. The company has used this strategy in other jurisdictions that filed suits in state courts, such as Massachusetts, Nevada, and Washington.

Rhode Island could then respond with an emergency motion to remand the case back to state court.

So far, states have successfully secured remand orders. Courts have concluded that the states’ complaints were primarily tied to state gambling law, despite federal preemption arguments raised by prediction market operators.

In Nevada, the remand allowed state regulators to pursue a preliminary injunction, which the court later granted. The order blocked Kalshi from offering event contracts pending appeal.

While states have largely prevailed in procedural remand fights, Kalshi has recently secured several favorable federal rulings on the underlying preemption issue.

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