Kalshi was sued in a proposed class action alleging it refused to pay $54 million owed to traders who correctly bet that Iranian Supreme Leader Ali Khamenei would leave office before April 1, 2026. Khamenei was killed Feb. 28 in joint U.S.-Israeli airstrikes.
The platform invoked a pre-existing "death carveout" clause to void the payouts - a provision plaintiffs say was not adequately disclosed before they placed their bets.
The complaint, filed in the U.S. District Court for the Central District of California as Risch v. KalshiEX LLC (No. 2:26-cv-02390), alleged the market's plain language was "clear, unambiguous and binary."
Attorneys from Novian & Novian LLP represent plaintiffs Adam Risch and Yonatan Gliksman, who seek damages, disgorgement of profits, and updated disclosure requirements.
What Happened
Kalshi's market rules stated that if Khamenei died, the contract would be settled at the last traded price before his death - not at full payout.
The lawsuit alleged the platform continued drawing traders into "yes" positions as reports of military strikes accumulated on Feb. 28, knowing it would not deliver winnings.
Kalshi CEO Tarek Mansour defended the policy, saying the company does not offer markets "directly tied to death" because doing so could create incentives to harm public figures.
After backlash mounted, Kalshi said it would reimburse all fees and net trading losses out of pocket. Co-founder Luana Lopes Lara said all users were "made whole." That framing is disputed: Kalshi covered losses on bad trades and fees - not the full theoretical winnings on winning "yes" positions, which is precisely what the lawsuit seeks to recover.
Why It Matters
The case cuts to a structural ambiguity in regulated prediction markets: when a contract is framed around a political outcome, and death is the most probable path to that outcome, does a death carveout constitute a hidden material term?
Sen. Chris Murphy (D-Conn.) said he would draft legislation to ban bets tied to government actions, citing assassination-incentive risk.
Separately, rival Polymarket faced congressional scrutiny the same week over alleged insider trading related to the Iran strikes.
Kalshi had been one of the highest-profile beneficiaries of the 2024 U.S. regulatory opening for prediction markets. This lawsuit, filed less than a week after Khamenei's death, tests whether that regulatory status extends to absorbing the consequences of geopolitical volatility it actively marketed to users.
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