Lawsuit targets Polymarket, Kalshi over alleged illegal sports gambling in RI

PROVIDENCE, R.I. (WPRI) -- Rhode Island Attorney General Peter Neronha is suing the world's two largest online prediction markets, alleging they are offering sports betting illegally to residents outside the state's regulated gambling system.

In a 32-page complaint filed May 21 in Providence County Superior Court, Neronha accuses Polymarket and Kalshi of functioning as sports gambling platforms under the guise of "event contracts." He argues users are betting real money on uncertain real-world events for financial prizes, ultimately constituting to "casino gaming" and "online sports wagering" under state law.

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"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," Neronha said in a press release. "And Rhode Islanders are losing out."

In Rhode Island, online sports betting is only permitted through the state-run platform Sportsbook RI. Since 2019, the Rhode Island Lottery has regulated the system, requiring licensing, oversight and revenue sharing, along with consumer protections such as identity and age verification, "know your customer" controls, suspicious activity monitoring and responsible gaming tools including deposit, wager and time limits and player self-exclusion.

Neronha argues Kalshi and Polymarket mirror traditional sports betting in structure and behavior, including leaderboards and real-time updates on betting activity. He claims the platforms use design features that encourage addictive behavior.

"While these private companies continue to profit exponentially off hard-working people, the State's third largest revenue stream is detrimentally affected, which means less money to fund critical parts of programs that serve Rhode Islanders every day," Neronha continued.

He also accused the companies of "circumventing" state law and putting Rhode Islanders' mental and financial well-being in harms way.

Neronha is seeking a declaratory judgment from the court stating that Kalshi and Polymarket are subject to Rhode Island gambling regulations and asking for a permanent injunction blocking the platforms from offering sports "event contracts" in the state.

Meanwhile, both Polymarket and Kalshi deny the allegations in Neronha's lawsuit, noting that they operateas prediction markets regulated under federal financial rules rather than state gambling law.

In fact, hours before the state filed its complaint, Kalshi filed a separate federal lawsuit in U.S. District Court in Rhode Island, anticipating possible enforcement action.

According to the complaint, Neronha asked multiple pointed questions during a May 20 meeting with Kalshi representatives and "made clear" the platform's offerings would not comply with Rhode Island gaming laws. The filing also alleges the state declined to assure Kalshi it would refrain from enforcement, indicating Rhode Island intended "to act imminently."

Kalshi argues the state's position conflicts with federal law and the regulatory framework of the Commodity Futures Trading Commission (CFTC).

"The threat of enforcement is heightened by the fact that Defendants have refused to provide Kalshi with assurances of non enforcement, despite Kalshi's endeavors to initiate dialogue to assuage any of the State's concerns," the lawsuit reads.

A Kalshi spokesperson defended the company's operations in a statement to 12 News.

"As other courts have recognized, Kalshi is a regulated, nationwide exchange for real-world events, and it's subject to exclusive federal jurisdiction," the statement read. "It's fundamentally different from what state-regulated sportsbooks and casinos offer their customers. We are confident in our legal arguments."

A Polymarket spokesperson also responded to a request fro comment from 12 News, saying the action "runs counter to the CFTC's established framework for regulating prediction markets."

Read the Attorney General's full lawsuit below.

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