Developing Utah Sued Kalshi on Tuesday. It Also Sued the Firm on the Other Side of the Trade, and That Is the Part Every Exchange Should Read

Editor's note: TrueEdge builds odds tools and earns affiliate commissions from licensed sportsbooks, which compete directly with the exchanges this piece is about. Our standing position, argued since this beat opened, is that a state should pursue a federally registered exchange through civil process rather than criminal charges. Utah chose civil process on Tuesday. Weigh the conflict.

Utah's attorney general, Derek Brown, filed a 63-page civil complaint against Kalshi in 3rd District Court in Salt Lake City on Tuesday morning, declared gambling a public nuisance in the state, and asked a judge to bar sports, election, politics, culture and mention contracts for anyone located in Utah, enforced by a court-approved geolocation provider. That part was expected. Kalshi sued Utah in February, lost before U.S. District Judge Robert J. Shelby on August 4, and was refused an injunction pending appeal by the Tenth Circuit on September 8. We wrote in September that Utah's next step would look like Connecticut's, a state-court enforcement action filed after the federal courts declined to shield the exchange. It does.

The unexpected part is the caption under the defendants. ABC4's copy of the complaint lists seven: Kalshi Inc., KalshiEX LLC, Kalshi Klear Inc., Kalshi Klear LLC, Kalshi Trading LLC, Susquehanna International Group LLP and Susquehanna Government Products LLLP. We could find no earlier state action, civil or criminal, that named a prediction market's market makers as defendants. Utah's theory, as Crypto Briefing summarises it, is that the Susquehanna firms kept taking the other side of sports wagers from Utah residents after Judge Shelby ruled that Utah's gambling ban applied.

That is the escalation. Everything else in the filing is a sequel.

The arithmetic is a formula, not a finding

Start with the money, because the headline number is less than it looks. Brown wants disgorgement of what Kalshi made from Utah, and the complaint prices it at $30.6 million to $61.2 million (the Deseret News rounds to $30.5 million and $61.1 million). ABC4 printed the method. Kalshi data supplied to the state showed nearly 56,000 accounts with a Utah address as of February, about 32,000 of them verified, and more than 5 million wagers. The state assumed Utah's share of Kalshi's activity, which it puts at 1.1 percent, held constant over the exchange's lifetime, which yields 3,059,160,000 Utah wagers as of Monday. Multiply by one cent and you get $30,591,600. Multiply by two cents and you get $61,183,200.

So the range is not an estimate of profit. It is a count of contracts multiplied by a fee band, and the count is itself an extrapolation from a February snapshot. Kalshi's fees are not flat; they vary with a contract's price, and as we reported in September the exchange has been changing who pays them. Brown said as much on Tuesday: "As we get discovery in the course of this civil complaint, we anticipate having more information." The complaint's own figure for what Utahns actually lost is at least $5.5 million, derived from nationwide retail losses scaled by the same share. Read the $61 million as a ceiling chosen to survive discovery, not as a measured harm.

Why the market makers are the target that matters

A prediction market is only as useful as the prices on it, and on sports contracts those prices come largely from professional liquidity providers. Susquehanna is the most prominent of them on Kalshi. In August, per DeFi Rate, its Susquehanna Predictions unit agreed to provide "institutional-scale pricing and liquidity" for block trades that Cantor Fitzgerald arranges on the exchange. Retail customers on a sports contract are, much of the time, trading against a firm like that.

Suing Kalshi tells Kalshi to geofence Utah. Kalshi was going to fight that in the Tenth Circuit regardless; McGavick's statement on Tuesday said "this latest state court action does not affect our ongoing federal litigation," and that "no single state should have a veto" over a national derivatives market. Suing Susquehanna sends a different message to a different audience. It tells every firm that quotes two-sided markets on an exchange that the exchange's legal position is now their legal position, in every state where a court has rejected it. A market maker's business is pricing risk. A public-nuisance claim seeking restitution, damages and disgorgement is a risk it cannot price, because its exposure depends on where the anonymous person on the other side of the order book happened to be standing.

If that risk is real, the rational response is not to stop quoting Utah. It is to quote everything wider, everywhere, because a market maker cannot see geography. That is the lever. A state cannot switch off a federally registered exchange from Salt Lake City. It can make the exchange's best customers more expensive to serve.

Utah is not alone in moving from letters to lawsuits this week. In Ohio on Tuesday, Governor Mike DeWine said the state would sue the operators ignoring the Ohio Casino Control Commission's cease-and-desists, which went to ten brokerages and exchanges in late September with an October 16 deadline. "You have to actually go out and file these suits, and that's what we are going to do," he said, per SportsBettingDime. The commission says one operator has confirmed compliance and two are suing it.

The strongest case for Utah

Here is the best version of the state's argument, and it is better than the exchanges' allies will admit.

Susquehanna is not a passive bystander. It is a sophisticated firm that chose to provide liquidity on contracts that a federal judge in Utah had ruled, on August 4, were subject to a gambling ban the state has enforced since 1896. The Tenth Circuit declined to pause that ruling on September 8. From that date, any professional on the book knew some fraction of the retail flow it was trading against came from Utah, and Kalshi's own data put that fraction at about 1.1 percent. A casino cannot avoid liability by pointing out that it never asked the gambler where he lived. Neither, the state would say, can the house's partner. The complaint calls Kalshi "the manager of a back-alley gambling den" taking a "rake," per the Utah News Dispatch; in that picture the market makers are the house money.

We accept the first half of this. Knowledge matters, and after September 8 nobody in this market can claim not to have known.

We do not accept the second half, and the reason is in Utah's own prayer for relief. The remedy the state asks for is a court-approved geolocation provider at the exchange. That is an admission that location is controlled at one point in the system, and it is not the market maker's terminal. Susquehanna's quotes go into an order book that does not tell it who is on the other side. A firm that cannot see where its counterparty is cannot geofence, and a claim that it should have stopped trading with Utahns is a claim that it should have stopped trading on Kalshi altogether. That is a demand for a national shutdown dressed as a state remedy, which is precisely the extraterritorial reach Utah says Kalshi is trying to impose in the other direction.

What would change our view: evidence in the complaint, which we have not been able to read in full (ABC4 posted it, but ABC4's site returned a 403 to our fetcher and we read its story through Yahoo's syndication), that Susquehanna had Utah-specific information, a Utah-specific arrangement or block trades with identified Utah counterparties. Any of those would make the market-maker counts look very different, and we will say so if it is there.

What Utah got right

The instrument. Brown declined on Tuesday to discuss criminal charges, and offering online gambling in Utah is a third-degree felony per his own office, so the option was on the table. He chose a civil complaint in a state court, with discovery, a judge and a geolocation remedy that can be argued over on the merits. Cointelegraph's count puts Arizona as the only state to have gone criminal. Utah, whose constitution bans gambling in all forms and which holds one of the strongest federal rulings of any state, chose not to join it. That is the correct choice, and we said in September that we would say so if a state made it.

The rest is a bet on whether a market maker's lawyers will tell it to widen its quotes before a judge has ruled on anything. We do not know. Neither, on Tuesday afternoon, does Susquehanna.