Kalshi Refused to Honor Certain Prediction Contracts with ‘Death Carveout,’ Class Action Lawsuit Claims

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KalshiEX faces a proposed class action lawsuit that alleges the prediction market platform refused to pay consumers who placed traded “event contracts” on whether the former Supreme Leader of Iran, Ayatollah Ali Khamenei, would leave office by a particular date.

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The 25-page lawsuit claims that Kalshi, a prediction market platform that allows consumers to purchase binary “yes” or “no” contracts for specified future events, used a “predatory scheme” whereby it refused to distribute payouts to consumers who had correctly predicted that Ali Khamenei would leave office by a particular date following his death on February 28, 2026.

The prediction market contract was titled “Ali Khamenei out as Supreme Leader?” and opened on or around January 8, 2026, the Kalshi lawsuit explains. According to the filing, consumers had the option to purchase prediction contracts that Khamenei would be removed by March 1, 2026; the market remained open and active while the United States military “amassed on Iran’s doorstep,” and Kalshi “actively and aggressively” promoted the prediction market as news of Khamenei’s death began to circulate, the complaint says.

Consumers widely understood that “the most likely—and in many cases the only realistic—mechanism by which an 85-year-old autocratic leader would ‘leave office’ was through his death,” the filing contends.

Per the case, the rules on the Kalshi website simply state that “if Ali Khamenei leaves office before March 1, 2026, then the market resolves to yes.” Consumers purchased their prediction contracts with the understanding that “leaving office” was a general term that would include death, the suit states.

Khamenei was confirmed to have been killed by a military strike on February 28, 2026. However, after Kalshi closed the market on February 28, the company announced that “yes” predictions for the Khamenei contract would settle based on the “last traded price (prior to death),” instead of resolving to “yes,” the case states.

The lawsuit says that Kalshi wrongfully invoked a “death carveout” provision, stating that “removed from office” did not include Khamenei’s death, and maintained this position as justification for not paying consumers who had purchased “yes” contracts.

Critically, the lawsuit says, Kalshi continued to accept trades on the Khamenei market throughout the day on February 28, while they “knew or should have known” the contracts would not be paid in full because of the carveout.

Kalshi’s actions, the lawsuit slams, have made it the “poster child” for deceptive corporate behavior and consumer fraud. The case claims that Kalshi “capitalized on heightened public interest” in military actions in Iran to increase its trading volume and profits; the Khamenei market had accumulated $54 million of trades before its closure, per the suit.

The case says that the company did not disclose the death carveout in any way to consumers trading on the Khamenei prediction market.

In fact, the filing says that Kalshi sent an email to consumers following closure of the Khamenei market where it conceded that “many users did not have a full understanding of the rules for this market,” acknowledging consumer frustration; however, Kalshi still declined to pay consumers for the full value of their contracts, instead distributing “fractions” of what consumers had earned, the Kalshi class action lawsuit says.

Furthermore, the lawsuit says that Kalshi never “adequately explained” how it determined the value of the last trade price, and has been “opaque” about the criteria used and whether it was uniformly applied across all contract expiration dates.

Notably, Kalshi added a prominent disclaimer about the death carveout to the Khamenei markets page only after military strikes on Iran had already begun.

Kalshi’s refusal to honor “yes” contracts reveals the company’s “fundamental dishonesty,” the filing charges, as the defendant allegedly used a technicality to avoid distributing consumers’ rightfully earned payouts. The case says Kalshi makes “clear promises” to consumers, then “pulls the rug out from under them when those promises become inconvenient.”

The lawsuit says that this is not the first time Kalshi has been under “regulatory scrutiny.” In November 2025, consumers filed a class action lawsuit alleging that the company operates as an unlicensed sportsbook and preys on consumers.

The Kalshi class action lawsuit seeks to cover all individuals in the United States who held “yes” positions on any contract within the Kalshi “Ali Khamenei out as Supreme Leader?” prediction market (ticker: KXKHAMENEIOUT), across any expiration date, including but not limited to the “Before March 1, 2026,” “Before April 1, 2026,” “Before June 1, 2026,” and “Before September 1, 2026” contracts, at the time trading was halted on February 28, 2026.

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