Kalshi and the Commodity Futures Trading Commission (CFTC) both punished a White House teleprompter operator on Friday after he bet on Trump's speech text before the president read it out loud. Gabriel Perez gave up $107,539.02 in profit and paid a $65,000 fine on top, with a three-year trading ban imposed. According to the CFTC order, Perez was credited with exemplary cooperation that resulted in a substantial discount from what he would have owed under standard penalties. The CFTC discounted the fine significantly because of Perez's cooperation, with the agency stating that without his assistance, the fine would have been closer to $107,000. This compares to the $17,500 fine and $17,569.98 clawback imposed on former congressman George Santos in July, where Santos paid roughly $1 in fines for every $1 he made.
The U.S. Court of Appeals for the Ninth Circuit has ruled against Kalshi in its appeal to block Nevada gaming regulators from enforcing state laws against sports event contracts. In a 3-0 unanimous ruling on August 28, the appeals panel found that Kalshi's sports contracts are likely bets rather than swaps, allowing Nevada to enforce its gaming laws while litigation continues. Circuit Judge Ryan Nelson wrote that the CFTC is not a national gambling regulator, stating that Kalshi's broader interpretation lacked a limiting principle and did not fit the surrounding statutory framework. The court rejected Kalshi's three preemption arguments, finding that express preemption did not apply and that compliance with both federal and Nevada law was not impossible. The ruling did not invalidate the CFTC's proposed event-contract rules or decide whether a future final rule would survive an Administrative Procedure Act lawsuit. Nevada Gaming Control Board attorney Nicole Saharsky welcomed the decision, stating it confirmed that states regulate sports betting, while Arizona Attorney General Kris Mayes also welcomed the ruling, saying that calling a sports bet a swap does not change the product's nature.
Connecticut has sued Kalshi seeking an injunction against its sports event contracts, with Attorney General William Tong, Department of Consumer Protection Commissioner Bryan T. Cafferelli, and Governor Ned Lamont arguing the prediction markets amount to unlicensed sports betting under state law. As reported by crypto.news, Connecticut officials maintain that contracts tied to sporting event outcomes fall under state gambling laws even though Kalshi operates as a federally regulated derivatives exchange. The lawsuit extends a dispute that began in December 2025, when Connecticut's Department of Consumer Protection ordered Kalshi, Robinhood and Crypto.com to stop promoting and offering sports event contracts to residents. Connecticut legalized sports wagering in 2021 through a system that subjects licensed operators to consumer protection, age verification and other regulatory requirements, with Lamont stating that prediction market operators should not be allowed to operate outside this regulatory structure.
Kalshi's enforcement head Robert DeNault issued a warning to users following the White House staffer case, stating that "it doesn't matter who you are: violate our rules or federal law and you will face the consequences." The warning comes after Kalshi flagged Perez's account and sent the file to Washington after he never turned himself in, with investigators reaching him only after the exchange identified the violation. Perez's case demonstrates the value of cooperation - while he would have owed close to $107,000 under standard penalties, he paid only $65,000 due to his assistance with the investigation. This enforcement action occurs eight days after CME Group chief Terry Duffy raised concerns about prediction markets being gamed, with CFTC Chairman Michael Selig calling the examples offshore. The case shows that US-listed event contracts can be enforced even when traded on CFTC-regulated exchanges, as Perez's violation occurred on the same exchange that caught him.
The CFTC's June proposal to amend Rule 40.11 remains pending but faces new legal risks following the Ninth Circuit's ruling. The proposal would establish a 90-day review process and define how the agency interprets "gaming" and when a contract "involves" an enumerated activity. The Federal Register notice closed for public comments on July 27, with the agency able to revise, finalize or withdraw the proposal after reviewing submissions. However, gaming attorney Daniel Wallach argued that the CFTC's rulemaking was "DOA" because of the court's major-questions analysis, predicting APA litigation in a California federal court. The Ninth Circuit's decision conflicts with a Third Circuit ruling favoring Kalshi in its dispute with New Jersey, making Supreme Court review more plausible, though review is not guaranteed. New Jersey faced a September 3 deadline to seek further review of the Third Circuit decision, while Kalshi could also seek Ninth Circuit rehearing or petition the Supreme Court.
The legal battle extends beyond Connecticut, with more than a dozen states involved in enforcement actions, cease-and-desist orders or related court fights over prediction markets. Washington secured a court victory in July when King County Superior Court Judge John McHale blocked Kalshi sports markets after granting the state's request for a preliminary injunction. Baltimore has also joined the legal action, suing Kalshi and Polymarket earlier this month, alleging that sports event contracts offered through their platforms amount to illegal gambling. Baltimore's lawsuit also names Coinbase, Robinhood and Webull, which have offered customers access to prediction market products through partnerships or distribution arrangements. State officials have generally argued that sports event contracts function as sports bets because customers put money on sporting outcomes, while Kalshi maintains that the legal structure of the products is different because users trade standardized contracts through an exchange regulated under federal commodities law. In July, a Washington state judge also blocked Kalshi sports contracts after finding that state officials were likely to succeed on claims that the platform offered illegal gambling products.
The prediction market industry is intensifying its political response to mounting legal challenges, with Kalshi leading lobbying efforts with over $1.7 million in federal lobbying expenses in the first half of 2026, plus hundreds of thousands more at the state level. According to government filings, Kalshi employees have contributed more than $1 million this election cycle to federal political campaign committees, while the organization has additionally given more than $100,000 to state election committees in California. The Coalition for Prediction Markets is spending a fraction of Kalshi's direct lobbying expenses, as the industry's market share leader dwarfs its peers in lobbying and political spending in favor of prediction markets. However, casino and traditional sportsbook interest groups, led by the American Gaming Association's $1.7 million federal lobbying contributions, are also spending formidable sums, with those organizations on pace to break $50 million in federal lobbying spending this year according to OpenSecrets data. Legal analyst Daniel Wallach expects Kalshi to consider the Supreme Court route because it lost before a panel made up entirely of judges appointed by President Donald Trump, though the company and CFTC did not immediately comment on the decision.
The prediction market industry faces a critical period as regulators determine the final framework for event contracts and tax authorities clarify treatment guidelines. Sports prediction markets have grown into a significant segment of the derivatives industry, giving regulatory decisions lasting importance for exchanges, regulators and market participants. Federico Variola, CEO of Phemex, expects centralized and decentralized exchanges to continue developing in parallel rather than one replacing the other, noting that the decentralization of these products is important because they have already become familiar to the vast majority of crypto users. Future rules are likely to focus on individual contract types, supported by consistent settlement standards, market-surveillance requirements and consumer protections suited to each category, with sports contracts presenting the most difficult example because they can trade on regulated exchanges while attracting users for reasons associated with sports betting. The legal fight over prediction markets is far from over, with operators needing to prepare for evolving regulatory requirements and build compliance into their business models while addressing the critical tax treatment questions that remain unresolved. Congress has separately examined the role of sports contracts on federally regulated exchanges, with the House Agriculture Committee scheduling a prediction-market hearing focused on customer safeguards and market integrity as gaming groups called for restrictions on sports-based products.
