A prediction markets platform is now facing legal trouble after traders accused it of mishandling a market tied to the leadership of Iran’s Supreme Leader.
Kalshi has been hit with a class action lawsuit over how it resolved a prediction market related to Ali Khamenei, the Supreme Leader of Iran.
Key Takeaways
Kalshi is facing a class action lawsuit over its handling of a prediction market about Iran’s Supreme Leader Ali Khamenei.
Traders say the platform denied full payouts by invoking a “death carveout” rule after Khamenei’s reported death.
Kalshi argues the rule exists to prevent users from profiting directly from someone’s death.
The lawsuit was filed in the U.S. District Court for the Central District of California and claims the platform misled traders participating in a market titled “Ali Khamenei out as Supreme Leader?”
According to the complaint, the market suggested that contracts predicting Khamenei would leave office by March 1 would pay out at full value if the prediction came true.
Traders Dispute Payout Decision
The dispute began after several media outlets reported on Feb. 28 that Khamenei had died.
Traders who held “yes” contracts expected those shares to settle at $1 each—the typical payout for a correct prediction on the platform.
Instead, Kalshi resolved the market using what it calls a “death carveout provision.”
Under this rule, if a leader leaves office solely because of death, the market doesn’t automatically pay out the full contract value. Instead, contracts settle based on the final traded price before the event.
The plaintiffs argue this decision denied traders the payouts they believed they had rightfully 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 also claims that traders received payouts that were arbitrary and significantly lower than what they expected.
Two named plaintiffs reportedly held positions worth about $259.84, while overall trading volume in the market exceeded $54 million.
Disclosure of the Rule in Question
The lawsuit further argues that the “death carveout” rule was not clearly disclosed to traders when they placed their bets.
According to the plaintiffs, the clause appeared only in detailed technical market rules that many users may not have reviewed before participating.
The controversy quickly spread across social media after the market’s resolution.
In response, Kalshi CEO Tarek Mansour addressed the issue in a post on X.
“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 also acknowledged that the platform could improve how it displays rules on market pages so traders can better understand contract conditions before placing bets.
Kalshi Says Traders Didn’t Lose Money
Despite the backlash, Kalshi says it reimbursed all trading fees and net losses connected to the market.
According to the company, no traders ultimately lost money after the resolution.
However, the plaintiffs are still seeking compensatory damages equal to the full expected payouts, along with punitive damages intended to discourage similar actions in the future.
Mansour said the platform simply followed its established rules and emphasized that the company did not profit from the market.
The lawsuit comes as prediction markets continue to grow rapidly. Kalshi recently raised new funding at an $11 billion valuation, highlighting the sector’s expanding popularity and the rising trading activity across event-based markets.
