Kalshi Faces Lawsuit Over Dispute on Payouts for Khamenei Prediction Market

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TLDR

  • Kalshi is facing a class action lawsuit regarding its resolution of a prediction market linked to the removal of Iranian Supreme Leader Ali Khamenei from office.
  • Traders who held “yes” contracts anticipated a full $1 payout after reports of Khamenei’s death on February 28, but Kalshi implemented a “death carveout” rule.
  • The market experienced over $54 million in trading volume, with the two named plaintiffs holding approximately $259.84 in positions.
  • Kalshi refunded trading fees and net losses, asserting that no user incurred financial losses. However, the plaintiffs are seeking the full contract value plus punitive damages.
  • Kalshi co-founder Tarek Mansour stated that the rule was clearly communicated and that the platform does not permit markets designed for traders to profit from a person’s death.

Prediction market platform Kalshi is the subject of a class action lawsuit filed in the US District Court for the Central District of California. The legal action concerns how Kalshi settled a market titled “Ali Khamenei out as Supreme Leader?”

The market’s question was whether Khamenei would cease to be Supreme Leader by March 1, 2026. Investors who purchased “yes” contracts expected to receive a full $1 payout per share if this event occurred.

On February 28, multiple news outlets reported Khamenei’s death. Traders interpreted this as a trigger for their contracts to pay out at their full value.

Instead, Kalshi applied what it refers to as a “death carveout provision.” This rule dictates that if a leader leaves office solely due to death, the market is settled at its last traded price, rather than paying out winning contracts at their full face value.

Plaintiffs contend that this rule was obscured within technical market documentation and was not sufficiently visible for the average trader to notice before making a trade.

The lawsuit alleges that the carveout was “not incorporated into the user-facing rules summary” and was not displayed in a manner that would alert a “reasonable consumer.”

The filing further states that Kalshi later acknowledged that its previous disclosures were “grammatically ambiguous.”

The two named plaintiffs had approximately $259.84 invested in positions. The total trading volume for this market surpassed $54 million.

Kalshi’s Response to the Lawsuit

Kalshi co-founder Tarek Mansour addressed the dispute publicly on the social media platform X. He reiterated the platform’s policy against listing markets that allow traders to profit directly from someone’s death.

“We don’t list markets directly tied to death,” Mansour stated. He added that the rule was part of the market’s terms and was not concealed.

Kalshi reimbursed all trading fees and net losses associated with the market, asserting that no trader experienced a financial loss.

Mansour also conceded that the platform could improve its presentation of rules to traders before they place bets.

What Plaintiffs Are Seeking

Despite the refunds, the plaintiffs remain dissatisfied. They are seeking compensatory damages equivalent to the full anticipated payout value of their contracts.

Additionally, they are pursuing punitive damages to deter similar actions in the future.

The lawsuit characterizes the carveout policy as “predatory” and an “unfair business practice,” arguing that given the market involved an 85-year-old leader and looming military conflict, death was the most probable outcome.

Kalshi recently secured funding at an $11 billion valuation, coinciding with prediction markets experiencing record trading volumes in 2026.