The US Commodity Futures Trading Commission (CFTC) has warned prediction market operator Kalshi that it could face enforcement charges over alleged failures to properly notify regulators about dozens of proposed contracts.
The agency has spent several months investigating whether Kalshi complied with federal requirements for submitting new products before making them available for trading, according to a November 10 report by POLITICO. A person familiar with the investigation said the regulator had privately notified the company about possible charges, although the matter could still end in a settlement.
Kalshi acknowledged the warning but disputed the reported scale of the filing problems, saying the issue concerned fewer contracts than suggested.
CFTC investigates Kalshi over prediction market contract filings
The investigation centers on the self-certification process, which allows federally regulated exchanges to introduce certain derivatives without obtaining explicit approval from the CFTC for each product.
Under the process, exchanges must notify the regulator and certify that proposed contracts comply with applicable requirements. Those obligations include providing information about settlement procedures and assessing whether a contract is vulnerable to manipulation.
Kalshi spokesperson Elisabeth Diana described the agency‘s concerns as “a procedural error involving the submission of a handful of contracts, many of which weren’t live.”
“We are already addressing the issue,” Diana said.
Her response differs from the account provided by the person familiar with the investigation, who said regulators were reviewing notification requirements involving dozens of proposed products.
The distinction between the two accounts has not been resolved publicly. The CFTC has not announced formal charges, identified the contracts under review or disclosed a proposed penalty.
The agency did not immediately respond to requests for comment about the investigation, according to the reporting.
Kalshi operates a CFTC-regulated derivatives exchange that offers contracts tied to elections, financial markets, sports and other events. Customers trade positions based on whether a specified outcome will occur, with settlement determined by the contracts published rules.
CFTC warned exchanges about self-certification practices in July
The reported investigation follows a July 24 advisory in which the CFTC instructed regulated exchanges to follow proper procedures when submitting event contract certifications.
The agency raised concerns about filings that combine numerous possible event contracts into one submission using broad, template-style descriptions.
In its advisory, the Division of Market Oversight explained that such filings could make it difficult to determine whether operators had provided enough information about contract settlement, market data and regulatory compliance.
The regulator specifically warned that “broad, template-style certifications should not be submitted.”
However, the guidance allows closely related contracts to be certified together under certain conditions, subject to the applicable filing requirements.
The advisory did not identify Kalshi as having violated those rules. It addressed the filing practices of designated contract markets generally.
Self-certification has become part of the regulatory debate surrounding prediction markets, particularly as exchanges introduce contracts covering new political, sporting and financial events.
CME Group CEO Terry Duffy previously questioned whether some event contracts were sufficiently protected against manipulation, expressing concern about the types of products reaching regulated markets.
Kalshi faces scrutiny as Democrats prepare tougher oversight
The reported enforcement warning comes as Democratic lawmakers prepare to examine the prediction market industry more closely following their victories in the November midterm elections.
POLITICO reported that Democrats intend to step up congressional oversight of prediction market operators when the next Congress begins.
The industry has faced disagreements over whether some event contracts fall under federal derivatives regulation or state gambling laws.
Kalshi has argued that its products are federally regulated derivatives, while several state authorities have challenged the companys ability to offer certain contracts without complying with local gambling restrictions.
The company previously secured a legal victory against the CFTC in 2024 involving political event contracts, after which its available markets expanded.
Its business has since moved into other derivatives categories. As crypto.news previously reported, Kalshi joined Coinbase, Payward, DRW, Jump Trading and Paradigm in supporting the regulators authority over US stock-linked perpetual futures.
The companies submitted a proposed legal brief in a separate dispute over whether existing federal law permits those derivatives to trade on regulated exchanges.
Meanwhile, Kalshi completed a $1 billion funding round in October at a $40 billion valuation. The financing, announced in late October, was co-led by Wellington Management and Sequoia Capital.
Polymarket faces separate CFTC investigation over US access
Kalshi is not the only prediction market operator facing federal scrutiny.
The CFTC is separately examining whether Polymarket complied with restrictions associated with its 2022 enforcement settlement, including measures intended to prevent unauthorized access by US users.
In January 2022, the regulator ordered Polymarket to pay a $1.4 million civil penalty for operating an unregistered facility offering event-based binary options.
The settlement required the company to wind down noncompliant markets and stop violating applicable federal derivatives regulations.
The latest investigation includes questions about the offshore platforms geographic restrictions and whether American users were able to access its services.
The reported Polymarket review covers advertising, location controls and safeguards associated with its separate US operation.
No final enforcement decision has been announced in either investigation.