The Kalshi Case: A Threat to Democratic Integrity

By Cantrell Dumas, Director of Derivatives Policy, and Stephen Hall, Legal Director and Securities Specialist

Beginning in 2022, KalshiEX LLC sought to introduce an “event contract” allowing speculators to wager up to $100 million on the outcomes of congressional elections. This venture set off loud alarms, and in the years since, Better Markets has called upon public interest organizations, policymakers, and concerned citizens to urge the Commodity Futures Trading Commission (CFTC) to intervene and prohibit these contracts. And that’s exactly what the CFTC did in September 2023 when it prohibited the listing of Kalshi’s election gambling contracts. But earlier this month a district court vacated the CFTC's ban, briefly allowing bets on the 2024 congressional elections on Kalshi’s platform.  Fortunately, the federal appellate court in D.C. issued a temporary stay of the lower court’s order and halted trading. Just last week, the appellate court heard oral argument on whether it should continue that stay while the parties hash out the CFTC’s appeal of the district court’s order. That case and the integrity of American democracy now hang in the balance.

Election Integrity

The stakes are huge. First and foremost is the threat these contracts pose to election integrity. Elections are not just another event to serve as fodder for gambling platforms—they are a fundamental pillar of American democracy. While the U.S. allows extensive betting on sports, casinos, and other sectors, elections are different due to their central role in our democracy. Voting is, and has always been seen as, a fundamental right and a cornerstone of this system.  Gambling on elections threatens the integrity of that sacred electoral process. Allowing individuals to place bets on the outcomes of congressional races introduces powerful incentives for manipulation and corruption. It is not difficult to imagine scenarios where bad actors seek to influence voters or even attempt to manipulate election outcomes for the purpose of profiting on their bets, divorced from the merits of the candidates seeking office. The very foundation of our electoral system relies on the integrity of the voting process; introducing financial stakes will undoubtedly corrupt that process.   

Gambling on elections adds insult to injury by trivializing what was won only after decades of struggle. Voting rights in the U.S. have evolved from a system where only white male landowners could vote to one where African Americans and women won voting rights through efforts like the civil rights and women's suffrage movements. These groups faced significant oppression in their struggle to gain the right to vote, highlighting how valuable and hard-won these rights are. Turning elections into a gambling event trivializes the democratic process and the history that underlies it. Treating elections as bets also diminishes civic duty, reducing it to a financial transaction.

Yet another threat arises from the inevitable damage to the public’s confidence in the integrity of our elections—apart from, and in addition to, damage to the election process itself. Such contracts will exacerbate an already fragile public trust in elections. Repeated claims by former President Donald Trump that elections are "rigged" and "fraudulent" have badly eroded confidence in the system. These claims, particularly surrounding the 2020 presidential election, have led to widespread belief among many voters that the election system is untrustworthy. The situation escalated dramatically on January 6, 2021, when a mob of Trump's supporters stormed the U.S. Capitol in an attempt to overturn the election results, citing concerns of fraud. This event is a stark reminder of how fragile public trust in the democratic process has become. Gambling on election outcomes will only make matters worse.

Gamification

There’s even more to consider. The financial implications for ordinary investors are alarming. Many investors will be drawn into compulsive trading behaviors, lured by slick advertising and gamified smartphone interfaces targeting many vulnerable individuals who do not fully understand the risks involved. The perils will be especially acute, as the market for these election wagers—untethered to any fundamental commodity prices or objective events—will itself be especially vulnerable to manipulation, blindsiding investors and intensifying the risks.  The personal financial losses for millions will be enormous. The CFTC, with a small budget already strained to the limit, cannot be expected to oversee such a market and adequately protect investors. Moreover, it is ill-suited to policing election fraud; its primary job is to regulate the vital commodities markets. 

Critics of the CFTC's decision point to the potential benefits of event contracts, arguing that they could provide a valuable new financial tool. However, this claim falls flat. These contracts serve no legitimate financial purpose, unlike traditional derivatives that help manage price risk in essential commodities. Instead, they would merely facilitate gambling, with no positive contribution to our economy or the society at large.

The Courts

The district court’s recent decision to side with Kalshi was disappointing on multiple levels.  In its ruling, the court latched onto unduly narrow interpretations of the statutory standards governing the CFTC’s review of event contracts. For example, it read “gaming” restrictively, even though multiple sources cited by the CFTC support the conclusion that it broadly covers wagering on contests, including elections. The court overlooked the reality that trading on election outcomes is tantamount to gambling, and it downplayed the fact that numerous states actually prohibit gambling on elections. After finding that the CFTC didn’t have the authority to subject the Kalshi contracts to review, it declined to reach the ultimate question, which is whether gambling on elections is “contrary to the public interest.” The court thus sidestepped the real consequences of permitting gambling on elections. And all along the way, the district court refused to at least acknowledge and weigh the CFTC’s considerable expertise on the subject of event contracts—something even the Supreme Court expressly allowed courts to do, even as it recently decided to abolish the long-standing principle that courts must defer to agency interpretations of ambiguous statutes. 

All of these matters are urgent, as we are now in the home stretch of what could be one of the closest elections of our lifetimes. We await the appellate court’s decision on whether to stay trading in the Kalshi contract pending the appeal. Meanwhile, the CFTC has proposed a rule to clearly define gaming in this context and to prevent betting on elections.  Better Markets once again rallied public interest organizations to support the rule, which is now under consideration at the CFTC following a comment period. Even members of Congress appreciate the gravity of the threat, as reflected in a bill introduced last week that would clearly ban all contracts involving political elections.  

These efforts in the courts, in the rulemaking process, and on the Hill all confirm the vital importance of prohibiting gambling on elections, for the sake of election integrity, the protection of investors, and the wise use of the CFTC’s scarce regulatory resources. The Kalshi case is not just about financial contracts—it’s about the very essence of our democracy. It is imperative that we prioritize the protection of our democratic institutions over speculative financial interests. The stakes could not be higher.