Kalshi, one of the largest regulated prediction markets in the U.S., is now fighting a potential class action lawsuit over how it settled a contract on the exit of Iran's Supreme Leader Ali Khamenei. Former New York state legislator Ben Geller has stepped forward as the proposed lead plaintiff, representing thousands of traders who say they were cheated.
The Settlement Dispute: Death as a Non-Event
The controversy erupted after Khamenei's death in early March. Most traders expected the market to settle at 'Yes' (the regime change event occurred). Instead, Kalshi refunded all market fees and paid out based on the last traded price before the death. Many users immediately called the move a scam on social media.
Kalshi co-founder and CEO Tarek Mansour defended the decision, stating that as a CFTC-regulated entity, the company could not legally allow a market to settle based on the death of an individual. He argued the market was listed for its geopolitical and economic relevance, covering oil prices, security, and broader consequences. Mansour noted that internal rules on death events had been published weeks earlier, but conceded their application to this specific market was unclear to many.
Traders pointed to Polymarket, a decentralized prediction platform, which settled a similar market on Khamenei positively (i.e., 'Yes'). This contrast fueled accusations that Kalshi's regulated status was being used as an excuse to avoid payouts, rather than a genuine legal constraint.
Ex-Lawmaker Leads Legal Charge, Seeks Big Law Firms
Ben Geller announced on social media that he is “implementing and demanding a formal litigation hold directed to Kalshi Inc. and all affiliated entities and custodians.” He also called for law firms with expertise in complex litigation, class actions, commodities and derivatives fraud, and financial markets enforcement to contact him for strategy discussions. Geller has positioned himself as the proposed lead plaintiff for a class action that could cover “thousands of users affected by the inadequate settlement.”
As of now, Kalshi has not issued a public statement regarding the legal threat. But users are already organizing evidence gathering, compiling trading records, and discussing claim strategies. If the class action proceeds, Kalshi will face both regulatory scrutiny and judicial review of its settlement policies.
Regulation vs. User Expectations: A Growing Rift
This case highlights a fundamental tension in regulated prediction markets: the gap between compliance obligations and trader expectations. Kalshi must adhere to CFTC rules that prohibit settlements tied to death. Yet traders buying 'regime change' contracts naturally assume a leader's death triggers the outcome. This mismatch has now exploded into a full-blown legal battle.
The outcome will test the bounds of U.S. regulation over political prediction markets. If users succeed, Kalshi may need to revise its contract terms or face a mass exodus of traders. If Kalshi prevails, it could set a precedent that regulated platforms can sidestep death-related payouts, potentially reshaping how such markets are designed.