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…
