Arizona files landmark criminal charges against prediction market Kalshi

Kalshi, a U.S.-regulated prediction market platform that allows users to trade on the outcomes of real-world events, has surged in popularity, highlighting growing public interest in event-based financial markets and outcome forecasting. (Cheng Xin/Getty Images via CNN Newsource)

Arizona’s attorney general has filed the first-ever criminal charges in the U.S. against a major prediction market company, accusing Kalshi of running an illegal gambling operation in violation of state law.

The criminal case, filed Tuesday in Maricopa County Superior Court, is a serious escalation in the ongoing battle between states, prediction market sites and the federal government, over how the industry should be regulated.

Arizona Attorney General Kris Mayes said the criminal charges were warranted because, in her view, Kalshi offers gambling, not futures contracts, and therefore would need state approval to operate.

“Kalshi may brand itself as a ‘prediction market,’ but what it’s actually doing is running an illegal gambling operation and taking bets on Arizona elections, both of which violate Arizona law,” Mayes, a Democrat, said in a statement. “No company gets to decide for itself which laws to follow.”

Prediction markets have exploded in recent months, and traders now spend about US$5 billion each week on websites like Kalshi and Polymarket, according to Dune Analytics, which tracks trading volumes. Interest in the industry has spiked after controversies involving Iran war “death markets” and concerns about insider trading.

Prediction market sites let users wager on everything from elections to sports, business, entertainment, even the daily high temperature in various cities or the number of measles cases per year.

Kalshi, which faces 20 misdemeanor counts for accepting bets on various sporting events and elections in Arizona, denies wrongdoing. (CNN has a partnership with Kalshi and uses its data to cover major events, but editorial employees are prohibited from participating in prediction markets.)

A spokeswoman for Kalshi, Elisabeth Diana, said in a statement to CNN that the case is “paper-thin” and claimed prediction markets can only be regulated by the federal government, echoing the position of the U.S. Commodity Futures Trading Commission (CFTC).

“States like Arizona want to individually regulate a nationwide financial exchange, and are trying every trick in the book to do it,” Diana said, adding that the markets on Kalshi are “different from what sportsbooks and casinos offer” and “should not be overseen by a patchwork of inconsistent state laws.”

Kalshi operates in the U.S. with regulatory approval from the CFTC. The other major player in the industry, Polymarket, is also approved but its U.S. site isn’t fully operational yet, so most of its markets are offshore and unregulated.

Polymarket is not facing any criminal charges.

The Arizona case specifically mentions Kalshi’s election-related markets, which have increased in popularity since the 2024 presidential contest.

For instance, more than $10 million has been wagered on Kalshi, and more than $12 million on Polymarket, over who will be the Republican nominee in Texas’ U.S. Senate race. That race is heading to a runoff in May, between incumbent Sen. John Cornyn and Texas Attorney General Ken Paxton.

The Biden-era CFTC initiated a rulemaking process in 2024 to prohibit election-related prediction markets. However, a federal appeals court later allowed Kalshi to offer election markets and the Trump-appointed CFTC chair, Michael Selig, withdrew the agency’s proposed ban earlier this year.

Former CFTC general counsel Robert Schwartz posted on X Tuesday that the Arizona charges highlighted why regulations about prediction markets shouldn’t be decided by “disorderly state by state litigation.”

Schwartz, who worked at the CFTC from 2011 to 2025, also said the agency’s ability to regulate the industry could be hampered if the Arizona case succeeds.

CFTC chairman Michael Selig, a Trump appointee, blasted the Arizona case in a social media post Tuesday afternoon.

“This is a jurisdictional dispute and entirely inappropriate as a criminal prosecution,” Selig said. “The CFTC is watching this closely and evaluating its options.”

This article has been updated with additional developments.

By Marshall Cohen, CNN