Kalshi Faces Class Action Lawsuit Over Khamenei Prediction Market Payout

Prediction markets platform Kalshi is facing a class action lawsuit over the resolution of a market tied to the leadership of Iran’s Supreme Leader, Ayatollah Ali Khamenei.

Key Takeaways:

• Kalshi is facing a class action lawsuit over how it resolved a prediction market on Iran’s Supreme Leader Ayatollah Ali Khamenei.
• Plaintiffs claim the platform denied full payouts by applying a “death carveout” rule after Khamenei’s reported death.
• Kalshi says the rule was designed to prevent traders from profiting directly from a person’s death.

The lawsuit, filed in the US District Court for the Central District of California, accuses the company of misleading traders in a market titled “Ali Khamenei out as Supreme Leader?”

Plaintiffs claim the platform created expectations that contracts predicting Khamenei’s removal by March 1 would pay out at full value if the outcome occurred.

Kalshi Traders Dispute Payout After ‘Death Carveout’ Rule Applied

According to the complaint, Khamenei’s death was reported by multiple media outlets on Feb. 28.

Traders holding contracts predicting he would be out of office by the following day expected their “yes” shares to resolve at $1 each, the standard payout for a correct prediction on the platform.

Instead, Kalshi applied a rule known as a “death carveout provision.”

The clause states that if the leader leaves office solely due to death, the market outcome will resolve based on the final traded price rather than paying out the full value of winning contracts.

The plaintiffs argue that this decision deprived traders of the payouts they believed they had earned.

“Plaintiffs and the proposed class members, who correctly predicted the outcome, did not receive the amounts they were promised,” the lawsuit states.

The complaint alleges that traders were paid amounts that were “arbitrary” and significantly below the expected contract value.

Two named plaintiffs reportedly held roughly $259.84 worth of positions in the market. Overall trading activity in the event exceeded $54 million in volume.

The legal filing further argues that the rule used to determine the payout was not sufficiently disclosed to users when they entered their trades.

According to the plaintiffs, the death-related clause appeared only in technical market rules that many traders may not have noticed before placing bets.

Public criticism intensified on social media following the market’s resolution. In response, Kalshi CEO Tarek Mansour addressed the issue in a post on X, explaining that the platform avoids markets that allow traders to profit directly from a person’s death.

“We don’t list markets directly tied to death,” Mansour wrote. “When potential outcomes involve death, we design the rules to prevent people from profiting from death.”

He acknowledged that the company could improve how rules are displayed on market pages. Mansour said the situation highlighted the need for clearer user experience design to ensure traders better understand contract conditions before participating.

Kalshi Says Traders Didn’t Lose Money After Market Dispute

Kalshi also reimbursed all trading fees and net losses associated with the market. According to the company, no traders ultimately lost money as a result of the resolution.

Despite the refunds, the plaintiffs are seeking compensatory damages representing the full value of the expected payouts, along with punitive damages intended to deter similar conduct in the future.

Mansour said the company followed its established rules and emphasized that Kalshi did not generate profit from the market.

The lawsuit arrives as prediction markets gain wider attention. Kalshi recently secured funding at an $11 billion valuation, reflecting the rapid growth of the sector and rising trading activity across event-based markets.

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