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Rhode Island Attorney General Peter Neronha sued Kalshi and Polymarket on 22 May, accusing both platforms of conducting unlawful sports betting in violation of state law — hours after Kalshi filed its own federal lawsuit to block Rhode Island from restricting its operations.
The suits represent the latest escalation in a growing legal war between prediction market platforms and state regulators. Rhode Island joins more than a dozen states that have taken legal action against prediction markets, but the simultaneous dual filings — each side moving first — mark a sharper confrontation than most.
What Rhode Island Is Arguing
Neronha filed his complaint in Providence County Superior Court, naming Kalshi and Polymarket as defendants and seeking a declaratory judgment that their sports-related event contracts are subject to state gambling regulations. He is also asking for a permanent injunction barring both platforms from offering those contracts in Rhode Island and for the disgorgement of profits.
Rhode Island legalised online sports betting in 2019. The market operates exclusively through the state-run Sportsbook RI, overseen by the Rhode Island Lottery. The AG’s office argues that Kalshi and Polymarket have been operating as de facto sportsbooks outside that framework — without a state licence, without oversight, and without contributing to state revenue.
“There is no substantive difference between sports betting and ‘events contracts’ in this context. Kalshi and Polymarket know that, and we know that. The problem here is that Rhode Island State law heavily regulates gambling, for good reason, and we allege that Kalshi and Polymarket are evading our laws. And Rhode Islanders are losing out.” — Peter Neronha, Rhode Island Attorney General
The AG’s office alleges the platforms’ presence has directly cost the state, pointing to an 8% decline in Rhode Island Lottery sports betting revenue. Since legalisation, Sportsbook RI has generated $2.8bn for the state — the third-largest revenue stream in the state system. Bally’s received a licence last week to become the second authorised mobile operator, making the unlicensed competition from prediction markets a more immediate political issue.
Kalshi’s Pre-Emptive Federal Filing
Kalshi filed its own lawsuit in US District Court in Providence on 21 May — before Neronha moved — naming the AG, Rhode Island Lottery Director Mark Furcolo, and Gaming and Athletics Administrator Christina Tobiasz as defendants. The company argues that event contracts, including those tied to sports outcomes, fall exclusively under the jurisdiction of the US Commodity Futures Trading Commission (CFTC) and that Rhode Island has no authority to regulate or restrict them.
“Kalshi is a regulated, nationwide exchange for real-world events, and it’s subject to exclusive federal jurisdiction. It’s fundamentally different from what state-regulated sportsbooks and casinos offer their customers. We are confident in our legal arguments.” — Elisabeth Diana, spokesperson, Kalshi
According to court filings, Kalshi became aware of the investigation in early May 2026, when the AG’s office confirmed to Kalshi’s counsel that it was likely to recommend a lawsuit. Kalshi moved first.
Polymarket has not publicly responded to Neronha’s complaint.
The Broader Federal-State Battle
Rhode Island enters a landscape where the federal-versus-state question is already producing conflicting outcomes across jurisdictions.
New Jersey issued a cease-and-desist to Kalshi, which sued back. The US Court of Appeals for the Third Circuit ruled 2-1 in Kalshi’s favour in April 2026, finding that the federal Commodity Exchange Act overrides New Jersey’s gambling statutes for sports-event contracts. New Jersey has indicated it intends to seek review at the US Supreme Court, a move that could ultimately resolve the classification question nationally.
The Ninth Circuit reached the opposite conclusion, upholding Nevada’s position. Nevada remains the only state with a court-enforced, in-effect ban against Kalshi. Massachusetts is separately contesting a paused injunction at its highest court.
Minnesota became the first state to pass a statutory outright ban on prediction markets, signed by Governor Tim Walz on 19 May 2026. The law, approved by the state Senate 56-10, would make operating or promoting a prediction market a criminal felony from 1 August 2026. The CFTC sued Minnesota the same day Walz signed the bill, calling it “the most aggressive move by a state to shut down CFTC-regulated markets and undermine the federal regulatory regime set up by Congress more than 50 years ago.” The agency is seeking a preliminary injunction before the law takes effect.
“This Minnesota law turns lawful operators and participants in prediction markets into felons overnight.” — Michael Selig, Chairman, CFTC
The CFTC has now sued multiple states, including Arizona, Connecticut, Illinois, and Minnesota, and recently secured a preliminary injunction blocking Arizona from pursuing criminal enforcement. Sports contracts account for roughly 85% of Kalshi’s business, according to Legal Sports Report. Kalshi’s most recent funding round valued the company at $22bn.
For more on how prediction markets have collided with state gambling frameworks, see our coverage of the Nevada court restraining order against Polymarket and the Nevada Gaming Board’s suit against Coinbase over unlicensed betting.
What Happens Next
The Rhode Island case will play out across two separate courts — state superior court for Neronha’s suit, federal district court for Kalshi’s. The outcomes are unlikely to be swift, but the 8% revenue decline figure gives Rhode Island a concrete economic argument that prior state challengers have not put on record as prominently.
Nationally, the critical dates are Minnesota’s 1 August enforcement deadline and any SCOTUS petition from New Jersey. If the Supreme Court takes the New Jersey case, it would be the first time the federal-versus-state jurisdiction question is argued before the nation’s highest court — an outcome Kalshi’s rapid growth makes increasingly hard to avoid.
Source: Rhode Island Attorney General’s Office / Providence Journal
