On October 20, the state of Utah filed a lawsuit against five Kalshi companies—the operators of a prediction market where users trade contracts tied to real-world outcomes—and two trading firms belonging to Susquehanna, alleging illegal gambling and seeking restitution, injunctions, and disgorgement, remedies that would require the companies to return money collected and halt the challenged conduct. By targeting the companies that run the markets for Kalshi, Utah is broadening the legal battle beyond the exchange itself.

Why the Susquehanna defendants matter

The lawsuit names Susquehanna International Group and Susquehanna Government Products. Utah contends that the two firms function as market makers, taking the opposite side of trades initiated by retail customers. In practice, this means they provide pricing for the purchase and sale of contracts, allowing trading to continue and minimizing fluctuations in price—the same function market makers perform across traditional financial markets. Utah's complaint stands out for extending gambling enforcement to that supporting role.

If states are able to hold market makers accountable alongside exchanges, legal risk could extend throughout the industry to any firm supplying liquidity to prediction markets. The claims are not yet verified, and neither company has been shown to be liable.

According to Utah's estimates, Kalshi has received between $30.6 million and $61.2 million in fees from accounts in the state. As reported by Utah News Dispatch, Attorney General Derek Brown is demanding a halt to the alleged illegal gambling, along with the return of the money collected by Kalshi. The complaint lays out the state's requests for restitution, injunctions, and disgorgement.

Federal oversight faces conflicting court rulings

Kalshi argues that, because it operates a designated contract market regulated by the Commodity Futures Trading Commission (CFTC)—a federal designation that places a venue's contracts under the agency's supervision—its event contracts are subject to federal regulation, and states therefore cannot classify them as illegal gambling.

The CFTC holds authority over swaps under 7 U.S.C. § 2, but the statute recognizes that the authority of other federal and state regulators and courts remains intact. Utah contends that this allows it to enforce its gambling laws against the sports contracts Kalshi offers. Kalshi, on the other hand, argues that federal law dominates the issue.

Courts have reached varied conclusions. On August 4, a court in Utah ruled that Kalshi's claims of federal supremacy over state gambling laws were incorrect. The Third Circuit agreed with Kalshi in the New Jersey case, but the Ninth and Sixth Circuits supported the states in separate cases. With federal appeals courts now divided, the core legal question remains unresolved outside the jurisdictions that have already ruled.

Cryptopolitan previously reported on the ongoing case in Connecticut. Attorney General William Tong filed a lawsuit against Kalshi on August 26 to stop what state officials believe is illegal sports betting. That suit came after a federal court ruling on August 10 rejecting Kalshi's efforts to block the enforcement of Connecticut's gambling laws. The court held that sports betting contracts are not covered by federal law as swaps. Kalshi contested the ruling, saying that CFTC regulation takes precedence over state law.

The CFTC has also moved to defend its authority. It sued three states on April 2 and proposed rules on October 9 that would explicitly classify event contracts as swaps. Neither action settles Utah's latest lawsuit, and with the rulemaking still pending alongside a divided appellate landscape, the reach of state gambling authority over event contracts remains an open question.

A $394 billion market confronts legal boundaries

Artemis data as of October 21 puts trailing-year prediction-market trading volume at $394.2 billion. Kalshi accounted for $309.8 billion and Polymarket $84.4 billion. Sports contracts generated $169.9 billion, or 43.1% of the total—the segment of the market Utah's suit targets. These figures measure trading activity, not revenue.

Legal pressure on market makers could widen spreads, weaken liquidity, or push trading elsewhere, including offshore. However, there is no evidence that Susquehanna has withdrawn from Kalshi.

The regulatory divide extends overseas. In July, ESMA warned that event contracts qualifying as financial instruments fall under European binary-options restrictions. Tiger Research says much of Asia still treats prediction markets as gambling, potentially missing out on capital and oversight.

Utah's lawsuit now raises a bigger question: can states regulate not just prediction exchanges, but also the firms that keep their markets?