Kentucky Attorney General Russell Coleman announced his actions, which seek to block sports-related prediction market trading in the state, on Wednesday
Kentucky Attorney General Russell Coleman filed lawsuits against Coinbase, Kalshi, Polymarket, Robinhood, and Webull on Wednesday regarding alleged violations of the commonwealth’s consumer protection and gambling laws. In the complaints filed in state court, Coleman seeks specific financial penalties tied to the allegations as well as a court order blocking the defendants from offering trading of event contracts connected to sports.
The lawsuits resemble similar complaints that other state attorneys general have brought forward against Kalshi, Polymarket, and others. The complaints also reference a recently enacted statute that the defendants are already challenging in the same court.
Coleman announces action against “illegal sports betting”
A Wednesday announcement from Coleman’s office explains that he filed the pair of lawsuits affecting prediction market exchanges “accuses each of these companies of operating unlicensed and illegal sports betting and gambling platforms in Kentucky.” Coinbase, Robinhood, and Webull all partner with Kalshi for trading of event contracts.
The Kalshi complaint and the Polymarket complaint both focus narrowly on event contract trading connected to sporting events as the offending activity. Both lawsuits are active in the Franklin Circuit Court for the Commonwealth of Kentucky.
Coleman bases his allegations in both complaints on the argument that the trading of sports event contracts fits the definition of sports wagering under Kentucky law. As none of the defendants qualify for a sportsbook license in Kentucky due to the commonwealth’s law requiring sportsbook operators to also operate horse racing facilities, offering such betting opportunities violates Kentucky’s gambling laws, according to the briefs.
Coleman also alleges that the defendants are in violation of Kentucky’s consumer protection statute as well. That’s where a significant amount of financial penalties could emanate from.
Lawsuits also argue that prediction market ads harm consumers
Coleman’s enforcement actions span simply past the issue of whether trading sports event contracts is tantamount to sports wagering. The complaints also claim that “defendants have repeatedly conveyed the false, deceptive, and misleading impression that the sports wagers that they offer through their prediction market are lawful, and not void, in Kentucky.”
As a result, the lawsuits ask the court to impose fines “of up to two thousand dollars ($2,000) per violation, and up to ten thousand dollars ($10,000) per violation when the conduct was directed at persons sixty (60) years or older.”
Given that each advertisement that the defendants have created could represent a distinct violation, financial penalties could be significant. These fines would be in addition to any disgorgement of unjust gains and recovery of lost funds that the court may impose.
A separate action that preceded Coleman’s filings in the Franklin Circuit Court could impede the progress of Coleman’s complaints, though.
Kalshi, Polymarket, and others won “race to courthouse”
Another filing in the same court preempted Coleman’s lawsuits by a few days. Crypto.com, Kalshi, and Polymarket filed their challenge to three Kentucky statutes.
Among those statutes are laws banning any licensed sportsbook operators in Kentucky from contracting with prediction market exchanges for sports wagering and a provision that imposes a tax of 14.25% on exchanges’ transaction fees. The litigation represents the first legal action taken by a newly formed coalition between Crypto.com, Kalshi, and Polymarket.
The coalition has asked the court to enjoin the commonwealth from enforcing the statutes. That prayer for relief did not include most of the consumer protection and gambling laws that Coleman has cited in his complaints, though.
The coalition may ask the court for permission to amend their complaint in reaction to Coleman’s lawsuits. Additionally, if the court grants the coalition’s request for injunctive relief, Coleman may need to amend his complaints to exclude the laws that would be enjoined from enforcement.
Another possibility for the near future is that the United States Commodity Futures Trading Commission (CFTC) may add Kentucky to the list of states that it has taken action against in federal court along the lines of prediction market regulation. The CFTC has done so against eight other states so far.
Over the next few months, the Franklin Circuit Court will adjudicate the future of prediction market exchanges in Kentucky. That dispute is ongoing on multiple fronts due to Coleman’s lawsuits.
