A class action lawsuit has been filed against Kalshi, alleging that the “Ali Khamenei Deposed as Supreme Leader” death cutout was not properly disclosed to users and that the platform failed to pay out winning trades.
Plaintiffs he said that the death penalty policy “was not included in the policy summary visible to the user” and was not presented in a manner that would notify a “reasonable consumer” of the policy or its effects.
“Defendants themselves later admitted that their earlier disclosures were ‘grammatically ambiguous,'” the lawsuit says.
Kalshi invalidated trading positions in the market after confirmation of the death of Khamenei, the former supreme leader of Iran, which means that the market has not decided to say yes.
“We do not list markets that are directly related to death. If there are markets that have a potential impact on death, we develop policies to prevent people from profiting from death” – Kalshi co-founder Tarek Mansour he said.
The plaintiffs characterized the carveout policy as a “predatory” and “unfair” business practice for this particular market. The lawsuit says:
“With a U.S. naval armada massed on Iran’s doorstep and military conflict not only predictable but widely expected, consumers have come to understand that the most likely, and in many cases the only realistic, mechanism by which an 85-year-old autocratic leader will ‘leave office’ is his death. The defendants also understood this.”
Mansour also announced a refund for users affected by the carveout policy, calculated based on the “last transaction price” on the market before Khamenei’s death was confirmed. The returns policy has also faced significant user backlash.
Plaintiffs in the lawsuit claim that the methodology and precise timestamps used to calculate the “last quoted price” for the forecast market were not disclosed or clear.
Related: Kalshi bans US politician over alleged insider trading violations
Co-founder Kalshi strongly opposes the lawsuits
Mansour maintained that Kalshi was simply sticking to its policy of not allowing “death markets” and stated that this policy was clearly stated in market principles.
“Kalshi has not made any money here and even made back all the losses from his own pocket. No user has walked away losing money from this market,” he said he said.
The incident comes as trading volume on prediction markets increases to record levels in 2026 as platforms gain popularity.
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