Utah has filed felony charges against prediction market operator Kalshi and its two co-founders, accusing them of illegally promoting gambling in the state, ABC4 reported on Wednesday. Prosecutors say an undercover state agent placed 12 sports wagers on the platform in September, despite a federal ruling that Utah's gambling laws apply to it. The criminal filing came one day after the Commodity Futures Trading Commission (CFTC) sued Utah to stop it from enforcing its gambling laws against federally regulated exchanges.

KalshiEX LLC, CEO Tarek Mansour and COO Luana Lopes Lara face one count of pattern of unlawful activity, a second-degree felony; 12 counts of online gambling promotion, a third-degree felony; and one count of gambling promotion, a misdemeanor, according to the charging documents.

Prosecutors allege that a special agent with the Utah State Bureau of Investigation set up an undercover account posing as a Utah resident and placed 12 wagers on sports including NFL and college games in September, passing a location check that confirmed he was in the state. Kalshi earned proceeds from the fees it charged on each bet, according to the charges.

"Gambling is illegal in Utah, whether you place the bet, run the game, or promote it. Calling it a 'prediction market' doesn't change what it is, and being federally registered doesn't put a company above the law," Utah Attorney General Derek Brown said in a statement.

Brown's office did not say what penalties it would seek, though the felony charges carry the possibility of jail time, the Associated Press reported.

Kalshi rejected the state's characterization. "This is a crazy overreach; Utah is clearly playing politics," the company said in a statement. "We look forward to putting a stop to this in court, just like we did in Arizona."

Utah's fight with the CFTC

The charges escalate a dispute that already involves the federal government, taking it from civil litigation into criminal prosecution. Utah, where the state constitution bans gambling, sued Kalshi in state court last week. On Tuesday, the CFTC sued Utah to block its enforcement actions against CFTC-registered exchanges, making it the 10th state the agency has taken to court. At the center of the standoff is the question dividing courts nationwide: whether sports contracts traded on CFTC-registered exchanges are federally regulated financial products or gambling that states can prohibit.

"Congress entrusted the CFTC to be the federal regulator with sole responsibility to oversee these markets," CFTC Chairman Michael Selig said.

Utah has already won one round. In August, U.S. District Judge Robert Shelby rejected Kalshi's own bid to block enforcement, ruling that federal law "does not preempt Utah's ability to enforce its anti-gambling laws." Kalshi is appealing to the Tenth Circuit, which denied its request for an injunction in September.

President Donald Trump has backed the CFTC, saying in May that it was "critically important that the CFTC's exclusive authority over Prediction Markets is maintained," and calling several state officials who had challenged the prediction market platforms "scum."

Federal appeals courts have split on whether states can apply gambling laws to prediction markets. The Third Circuit ruled in April that New Jersey cannot regulate sports contracts on the platforms, while the Sixth and Ninth Circuits sided with Ohio, Tennessee and Nevada in August and September. New Jersey has asked the Supreme Court to settle the question, backed by 39 other states and the District of Columbia.

"Different judges in different places say different things," Isaac Rose-Berman, a gambling policy fellow at the American Institute for Boys and Men, told ABC4. "It's just going to keep escalating and eventually get to the Supreme Court."