Kalshi is facing a class-action lawsuit after traders challenged its handling of a prediction market tied to Iran’s Supreme Leader, Ayatollah Ali Khamenei. The case centers on whether Kalshi applied a “death carveout” fairly after Khamenei died on February 28, 2026.
Plaintiffs argue the platform failed to pay the full value of winning “yes” contracts, while Kalshi says its rules were clear and were designed to prevent trading profits from a death-related outcome.
The lawsuit was filed in the US District Court for the Central District of California on March 5, 2026. It claims Kalshi failed to pay about $54 million to users who bet that Khamenei would leave office before March 1, 2026. According to the complaint, traders believed a confirmed exit from office would settle “yes” contracts at $1 each.
Plaintiffs say Khamenei’s death met the market’s plain meaning because the contract referred to him leaving office “for any cause.” They argue that Kalshi continued to allow trading even as reports of his death began to circulate. The complaint describes the company’s conduct as deceptive and says the disputed rule was not disclosed prominently enough when users entered their trades.
The legal dispute centers on Kalshi’s “death carveout” provision. Under that rule, if the officeholder left solely because of death, the market would resolve at the last traded price instead of a full “yes” or “no” payout. That meant holders of “yes” shares did not automatically receive $1 per contract, which triggered the current dispute.
The plaintiffs are asking for compensatory damages equal to the full value of the alleged unpaid “yes” payouts. They also seek punitive damages, arguing that Kalshi’s conduct harmed retail traders who believed they had made a correct prediction under the listed market terms.
Kalshi has rejected claims that it changed its rules after the event. A company spokesperson said the platform had included safeguards from the start to ensure users could not profit directly from death. Chief executive Tarek Mansour also said the company reimbursed all fees and net losses on the market, adding that no trader lost money overall.
Kalshi’s response has not ended the controversy because the lawsuit focuses on expected winnings rather than only losses or fees. Plaintiffs argue that refunds did not replace the value of contracts they believed should have settled in full. That difference now sits at the center of the legal fight.
The case arrives as prediction markets draw more attention from regulators, lawmakers, and investors. Reportedly, prediction market volumes have surged since the 2024 US election, and questions on federal oversight remain as the Commodity Futures Trading Commission considers a broader framework for the sector.
The Khamenei market dispute also adds to broader concerns about markets linked to war, assassination, and politically sensitive events. US law bars wagers that run against the public interest, and recent Iran-related contracts have raised fresh questions about ethics, market design, and the use of nonpublic information.
For Kalshi, the lawsuit could shape how prediction market platforms present rules, disclose exceptions, and settle contracts tied to real-world crises.