Our prior post tracked how the prediction markets fight had expanded beyond the federal preemption dispute between the Commodity Futures Trading Commission and the states into municipal consumer protection ordinances, legislative investigations, and consolidated consumer class actions. A new filing, Farias v. Kalshi Inc., No. 1CCV-26-0001429 (Haw. 1st Cir. Ct. filed Oct. 1, 2026), adds a further theory to that list: rather than asking a court to decide whether sports event contracts are federally regulated derivatives, it asks whether transactions procured through allegedly deceptive legality claims can be voided outright under state consumer protection law.

The Hawaii Complaint: A State-Law, State-Only Class Action

On October 1, 2026, a Hawaii resident filed a putative class action against Kalshi Inc., KalshiEX LLC, Kalshi Klear Inc., Kalshi Klear LLC, and Kalshi Trading LLC in the Circuit Court of the First Circuit. The complaint is drawn narrowly: the plaintiff “asserts no federal cause of action and no claim on behalf of a nationwide class,” proceeding “solely under Hawaiʻi law on behalf of a Hawaiʻi only class.” That framing places the suit alongside Baltimore’s municipal ordinance suits and the consolidated federal consumer class actions as another track independent of the circuit split over whether the Commodity Exchange Act displaces state gambling law.

The plaintiff alleges he discovered Kalshi “through social media and television advertising, including advertising representing that Kalshi’s sports betting was ‘legal in all 50 states,’ and through word of mouth from friends,” representations he says were “material to Plaintiff’s decision to use Kalshi while located in Hawaiʻi.” Over roughly three weeks in September 2026, he “placed hundreds of sports wagers through Kalshi from Hawaiʻi,” wagering more than $129,000 and seeking to recover that amount in net losses.

The complaint also alleges that Kalshi “required Plaintiff to upload his driver’s license to open and use his account,” giving Kalshi information identifying him as a Hawaii resident while it continued to offer him sports event contracts.

The Gambling-Law Predicate

The complaint grounds its claims in Hawaii’s existing gambling statute rather than the federal preemption question. Hawaii Revised Statutes section 712-1220 defines gambling to include “staking or risking something of value upon the outcome of a contest of chance or future contingent event not under the bettor’s control or influence, upon an agreement that something of value will be received upon a certain outcome,” and defines bookmaking to include “advancing gambling activity by accepting bets from members of the public upon future contingent events.”

The complaint alleges the plaintiff’s “sports event transactions satisfy the ordinary statutory description of gambling” because he “risked money on future sports outcomes and sports related contingencies outside his control in exchange for a payout if the selected outcome occurred,” and that Kalshi “materially aided and advanced the challenged activity by creating and maintaining the platform, soliciting and inducing participation, conducting the trading phases, arranging the financial and recording phases, and accepting compensation in connection with the transactions.”

The complaint also invokes the Ninth Circuit’s August 28, 2026 decision in KalshiEX LLC v. Assad, No. 25-7516 (9th Cir. Aug. 28, 2026), alleging it “held, in the context of Nevada’s enforcement of its gaming laws, that Kalshi had not shown that its sports event contracts are ‘swaps’ within the Commodity Exchange Act’s exclusive jurisdiction provision and affirmed dissolution of an injunction against state gaming enforcement as to sports event contracts.” Because Kalshi was the appellant in that case, the complaint alleges it “necessarily had actual knowledge of that decision” before the plaintiff’s September 2026 transactions.

Unfair or Deceptive Acts or Practices Under HRS Chapter 480

The lead claim is brought under Hawaii Revised Statutes section 480-2, which declares that “[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are unlawful.” The complaint alleges the defendants violated that section “by representing, directly or by implication, that sports betting through Kalshi was ‘legal in all 50 states,’ including Hawaiʻi, while offering Hawaiʻi consumers sports event transactions that Plaintiff alleges constitute gambling under HRS § 712-1220 and are not authorized commercial sports wagering under Hawaiʻi law.”

The complaint also pleads an omissions theory: the defendants “failed to disclose material information necessary to prevent their legality representations from being misleading, including that state regulators and courts had challenged Kalshi’s position that federal commodities law displaced state gambling law.” It alleges the conduct “was likely to mislead reasonable consumers acting reasonably under the circumstances,” given that “the legality of a sports wagering platform is material to a reasonable Hawaiʻi consumer deciding whether to open an account, provide identification, deposit funds, and wager money.”

Void Contracts and Rescission Under HRS Section 480-12

The complaint’s most distinctive theory relies on Hawaii’s void-contract statute. HRS section 480-12 provides that “[a]ny contract or agreement in violation of this chapter is void and is not enforceable at law or in equity.” The complaint cites Sakal v. Association of Apartment Owners of Hawaiian Monarch, 148 Hawaiʻi 1, 8 n.11, 466 P.3d 399, 406 n.11 (2020), for the proposition that a transaction involving an unfair or deceptive business practice is typically null and subject to rescission.

The complaint alleges that “[b]ecause the challenged sports wagering agreements were entered into through conduct violating HRS Chapter 480, those agreements are void and unenforceable under HRS § 480-12,” and seeks “rescission of the challenged transactions and restitution restoring Plaintiff and Class members, to the extent practicable, to the positions they occupied before entering those transactions.” That remedy would operate independently of any damages award under the unfair or deceptive practices claim and could reach every transaction in the class period without individualized proof of reliance or loss causation.

The complaint pairs this theory with an alternative unjust enrichment count, alleging the defendants “conferred monetary benefits on Defendants through fees, transaction related revenue, spreads, market making activity, and other economic benefits generated by their sports event transactions,” which it would be unjust for them to retain given that the benefits were “obtained through transactions induced by unfair or deceptive representations concerning legality and through agreements that Plaintiff alleges are void.”

Implications for Operators and Distribution Partners

As our prior post discussed, the federal preemption dispute remains unsettled, with the Third Circuit siding with Kalshi in April 2026 and the Ninth Circuit reaching the opposite conclusion in August 2026. The Hawaii complaint confirms that state consumer-protection and contract-law claims proceed on a track separate from that fight. Unlike the Baltimore ordinance suits, which seek injunctive relief, restitution, and per-violation civil penalties under a municipal framework, this complaint is confined to a single state’s residents and statutes. And unlike the consolidated federal class actions, which proceed nationwide, it adds a void-contract remedy not centrally featured in the actions we previously covered. The filing has distinct implications for prediction market operators and for the distribution partners that offer their products.

For Prediction Market Operators

The complaint’s central allegation is that Kalshi advertised its sports event contracts under the slogan “Legal in 50 states”—distinct from the “legal in all 50 states” representations the plaintiff says he personally encountered. Operators may want to consider whether broad, jurisdiction-agnostic legality claims in advertising and in-app messaging hold up state by state, particularly where the product is not licensed as sports wagering.

Because HRS section 480-12 voids the underlying agreement rather than awarding damages for a discrete misrepresentation, operators in states with similar statutes may want to evaluate this theory separately from familiar deceptive-practices damages exposure, including how it could interact with arbitration or forum-selection provisions in platform terms of use.

The complaint alleges that Kalshi’s own identity-verification process, which required a driver’s license, gave it information sufficient to identify the plaintiff’s Hawaii residence. Operators collecting identity and geolocation data for compliance purposes may want to consider how that data could be used to establish knowledge or notice in later litigation.

For Distribution Partners

Because the complaint expressly disclaims any multistate or federal claim, it may serve as a template for similarly structured single-state suits elsewhere. Distribution partners that offer event contracts through their own platforms face their own exposure under each state’s consumer protection and void-contract statutes, separate from the upstream operator’s exposure, and may want to maintain a current survey of those statutes across the states where they distribute the product.

A favorable outcome in the federal preemption litigation would not, on its own, resolve a state-law claim premised on deceptive legality representations and a void-contract remedy. While defenses and legal strategies should be appropriate based on the facts and law of a given case and asserted in consultation with experienced legal counsel, one issue for careful consideration is mitigating the risk that a defense in one forum inadvertently creates unintended exposure in another.

We will continue to monitor this litigation and related developments as part of our ongoing coverage of the prediction markets industry. For further discussion about how these developments may affect your business, please contact Jeff Le Riche or Kip Randall.