Kalshi Faces Class Action Lawsuit Over Prediction Market Payout Involving Khamenei

Prediction markets platform Kalshi is currently embroiled in a class action lawsuit concerning how it handled the resolution of a market related to the leadership of Iran’s Supreme Leader, Ayatollah Ali Khamenei. Plaintiffs allege that Kalshi misled traders about payouts following a reported death. The company insists its policies aim to prevent profiting from a death.

Key Takeaways

Kalshi is facing legal action over the resolution of a prediction market regarding Iran’s Supreme Leader, Ayatollah Ali Khamenei.
The plaintiffs contend that the platform limited payouts through a “death carveout” rule after reports of Khamenei’s death.
Kalshi argues this rule prevents traders from profiting from someone's death.

The complaint, filed in the U.S. District Court for the Central District of California, claims that Kalshi misled traders in a market titled “Ali Khamenei out as Supreme Leader?” The plaintiffs argue that the platform led traders to believe that contracts predicting Khamenei's removal by March 1 would provide full payoffs if that outcome occurred.

Kalshi Faces Class Action Lawsuit Over Khamenei Prediction Market Payout

Dispute Over Payouts Due to ‘Death Carveout’ Rule

The lawsuit highlights that Khamenei’s death was reported by multiple news outlets on February 28. Traders holding positions predicting he would be out of office by the next day anticipated their “yes” shares would resolve at $1 each, which is the normal payout for a correct prediction on Kalshi. Instead, the company invoked a rule known as a “death carveout provision.”

This provision stipulates that if a leader exits office because of death, the payout is determined by the final traded price instead of the full contract value. The plaintiffs assert that this decision denied traders the payouts they were rightfully owed.

“Plaintiffs and the proposed class members, who accurately predicted the outcome, did not receive the amounts they expected,” the lawsuit states.

The complaint further alleges that the traders were left with payouts that were “arbitrary” and considerably less than what they anticipated. Among the two named plaintiffs, it was reported they held approximately $259.84 worth of shares in the market, which saw total trading activity exceeding $54 million.

The lawsuit also claims that Kalshi did not adequately disclose the death-related clause to users when they made their trades. According to the plaintiffs, this clause appeared only in technical market rules that may have gone unnoticed by many traders prior to placing bets.

Public criticism quickly mounted on social media in the wake of this market resolution. In an effort to clarify, Kalshi CEO Tarek Mansour addressed the matter in a post on X, stating that the platform avoids markets that enable traders to profit from a person’s death.

“We don’t list markets directly tied to death,” Mansour wrote. “When potential outcomes involve death, we design the rules to ensure people do not profit from such events.”

He acknowledged the company’s need to enhance how rules are presented on market pages, emphasizing the importance of a clear user experience to help traders fully understand contract terms before participating.

Kalshi Maintains Traders Did Not Suffer Financial Loss

Kalshi has asserted that they reimbursed all trading fees and net losses linked to the market. According to the company, no traders ultimately suffered financial losses from the resolution of the market.

However, the plaintiffs are seeking compensatory damages to reflect the full anticipated payouts, along with punitive damages to deter similar actions in the future.

Mansour emphasized the company adhered to established rules and noted that Kalshi did not profit from this market.

This lawsuit comes at a time when prediction markets are gaining significant traction. Recently, Kalshi achieved funding at an $11 billion valuation, demonstrating the rapid expansion of this sector and increasing trading activities across event-driven markets.