Kalshi Sued Over Khamenei Prediction Market Payout Dispute

TLDR

• Kalshi faces a class action lawsuit over how it resolved a prediction market tied to Iranian Supreme Leader Ali Khamenei’s removal from office.
• Traders holding “yes” contracts expected full $1 payouts after Khamenei’s death was reported on Feb. 28, but Kalshi applied a “death carveout” rule instead.
• The market saw over $54 million in trading volume; two named plaintiffs held about $259.84 in positions.
• Kalshi reimbursed trading fees and net losses, saying no user lost money, but plaintiffs want full contract value plus punitive damages.
• Kalshi co-founder Tarek Mansour said the rule was clearly stated and the platform does not allow markets that let traders profit from someone’s death.

Prediction market platform Kalshi is facing a class action lawsuit filed in the US District Court for the Central District of California. The case centers on how Kalshi resolved a market titled “Ali Khamenei out as Supreme Leader?”

The market asked whether Khamenei would leave office by March 1, 2026. Traders who bought “yes” contracts expected a full $1 payout per share if the outcome came true.

Multiple media outlets reported Khamenei’s death on Feb. 28. Traders believed this meant their contracts would pay out at full value.

Instead, Kalshi applied what it calls a “death carveout provision.” This rule means that if a leader leaves office solely due to death, the market resolves at the last traded price rather than paying out winning contracts in full.

Plaintiffs say this rule was buried in technical market documentation. They argue it was not visible enough for the average trader to notice before placing a bet.

The lawsuit claims the carveout was “not incorporated into the user-facing rules summary.” It also says the policy was not displayed in a way that would alert a “reasonable consumer.”

The filing adds that Kalshi later admitted their prior disclosures were “grammatically ambiguous.”

The two named plaintiffs held about $259.84 in positions. Total trading volume in the market exceeded $54 million.

Kalshi’s Response to the Lawsuit

Kalshi co-founder Tarek Mansour addressed the dispute publicly on X. He said the platform has a standing policy against markets that allow traders to profit directly from someone’s death.

Kalshi reimbursed all trading fees and net losses tied to the market. The company says no trader walked away losing money.

Mansour also acknowledged the platform could do a better job displaying rules before traders place bets.

What Plaintiffs Are Seeking

Despite the refunds, plaintiffs are not satisfied. They are seeking compensatory damages equal to the full value of expected payouts.

They are also seeking punitive damages to discourage similar conduct in the future.

The lawsuit calls the carveout policy “predatory” and an “unfair business practice,” arguing that in a market involving an 85-year-old leader with military conflict looming, death was the most likely outcome.

Kalshi recently raised funding at an $11 billion valuation. The company secured this as prediction markets see record trading volumes in 2026.

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