In brief
Kalshi is facing a lawsuit in California over its resolution of a market related to the former Iranian leader.
The prediction market opted to utilize a rules provision called the “death carveout,” which effectively resolved and paid the market on its last traded price.
Plaintiffs allege the market’s rules were not disclosed prominently enough and are seeking compensation for their positions.
Popular prediction markets platform Kalshi is facing a class action lawsuit related to its handling of a market on the unseating of Iranian leader Ayatollah Ali Khamenei.
Filed in the District Court for the Central District of California, the suit alleges that the platform ran a “predatory scheme to exploit retail consumers” by creating expectations that it would pay out correct predictions, yet failed to do so in its recent “Ali Khamenei out as Supreme Leader?” market.
The plaintiffs allege that they expected that in the event of Khameni’s death—which was confirmed by multiple outlets on February 28—holding contracts for Khameni out by March 1 would resolve to “yes,” ultimately paying each share $1 as a correct prediction.
Instead, the prediction market utilized a “death carveout provision,” a rules clause which indicated that if the Supreme Leader left office “solely because they have died,” then the market would “resolve based on the last traded price.” In other words, with this clause, the exchange did not pay out “yes” shares at $1.00, as expected by the plaintiffs.
“Plaintiffs and the proposed class members—who correctly predicted the outcome—did not receive the amounts they were promised,” the suit reads. “Plaintiffs Risch and Gliksman, like thousands of other consumers who correctly predicted the outcome, received arbitrary amounts unilaterally determined by [Kalshi] that were significantly lower than their respective contract values.”
As social media pushback began to build on February 28, the day of Khameni’s death, Kalshi CEO Tarek Monsour took to X to explain his firm’s decisions.
“We don’t list markets directly tied to death,” he said. “When there are markets where potential outcomes involve death, we design the rules to prevent people from profiting from death. That is what we did here.”
The plaintiffs allege those rules, like the death carveout “upon which defendants relied was not adequately disclosed to plaintiffs or the proposed class members at the time they entered into their trades.”
“In these instances, we make the caveat clear in the rules and in the market page, but today is a good learning that we can do more in terms of improving the UX and adding more ways to surface the rules,” said Monsour.
As a result, the firm reimbursed all fees and net losses, with Monsour highlighting that “no trader lost money” on the market.
Plaintiffs in the case held around $259.84 worth of positions in the market, which ultimately generated more than $54 million in total trading volume.
In the suit’s relief requests, plaintiffs and all others similarly situated are requesting compensatory damages representing the full value of “yes” payouts, and “punitive damages in an amount sufficient to punish defendants and deter similar conduct in the future.”
“We stand by principle and law,” Mansour posted on X in acknowledgement of the suit, reiterating that the firm didn’t deviate from rules, prevented a market where traders can benefit from a person’s death, and made no money on the market.
Kalshi recently raised funds at an $11 billion valuation as prediction markets surge in popularity and trading volumes. (Disclaimer: Decrypt’s parent company, Dastan, operates the prediction market platform Myriad.)
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