Attorney General Russell Coleman of Kentucky is drawing upon an 18th-century law to challenge major cryptocurrency and financial platforms over their involvement in betting and gambling legislation. This law, previously used in the state’s significant legal battle against PokerStars, enables Kentucky to seek recovery of triple the losses incurred by residents on these platforms.
The allegations against Coinbase center around claims that the cryptocurrency exchange colluded with Kalshi, a prediction market platform, by splitting fees on bets. Meanwhile, Robinhood and Webull have also been implicated for providing insufficient resources for problem gamblers, violating Kentucky’s regulatory requirements.
Coleman is invoking Kentucky’s Loss Recovery Act, a potent legal tool that previously resulted in a historic $870 million judgment against PokerStars in 2015. That amount swelled to over $1.3 billion with accrued interest before Flutter Entertainment ultimately settled for $300 million. The state argued that PokerStars, by taking a commission from gambling pots, was classified as a “winner” liable for the financial losses of players.
Kentucky’s current claims suggest that a staggering 89% of Kalshi’s projected $23 billion contract volume in 2025 derives from sports wagering activity, which Coleman asserts reclassifies the “event contract” model as a mere guise for unlawful betting.
This matter has broader implications regarding regulatory authority over prediction markets. While Kalshi and similar platforms argue that their operations are under the jurisdiction of the Commodity Futures Trading Commission (CFTC), Kentucky asserts that, similar to numerous other states, such offerings are essentially sports betting cloaked in a different form.
The situation becomes increasingly complex given Coleman’s political affiliations. Despite being a Republican and a former U.S. attorney nominated by Trump, he finds himself at odds with the Trump administration, which supports the CFTC’s authority over state-level regulations. Notably, Donald Trump Jr. has connections as an advisor to both Kalshi and Polymarket, further complicating the political landscape.
Additionally, the industry has initiated legal actions against Kentucky, particularly focusing on a new tax imposed on prediction-market trades, while a recent state law restricts licensed sportsbooks from collaborating with such platforms. Coleman’s legal actions emerge amid this contentious backdrop, appearing to function as a strategic countermeasure.
Responding to these developments, representatives from Kalshi and Polymarket argue that the suit contradicts federal guidelines. Kalshi’s spokesperson stated, “The CFTC is our regulator, not the states,” while Polymarket’s commentary reflected skepticism regarding the viability of a proposed federal ban on sports prediction markets in the immediate future.
As it stands, with Kalshi and Polymarket being private entities, it is only Coinbase and Robinhood who will need to face scrutiny from investors and address these allegations directly during upcoming earnings calls. This burgeoning legal battle could have significant ramifications for the future of betting and prediction markets within Kentucky and potentially set precedents for operations across the nation.
