The carveout was two words buried in market rules. Those two words are now the subject of a federal class action.
A lawsuit has been filed against prediction market Kalshi, alleging that a “death carveout” embedded in the “Ali Khamenei out as Supreme Leader” market was never properly disclosed to users — and that the platform subsequently refused to pay out winning positions. According to the filing, the policy was “not incorporated into the user-facing rules summary” and was not displayed in a manner that would alert a “reasonable consumer” to its existence or consequences.
When the death of Khamenei, Iran’s former Supreme Leader, was confirmed, Kalshi voided all trading positions in the market. The resolution did not trigger a “yes” payout. The platform’s reasoning: it does not list markets directly tied to death, and designs rules to prevent users from profiting off fatalities.
Tarek Mansour, co-founder of Kalshi, stated the policy plainly. “We don’t list markets directly tied to death,” he said. “When there are markets where potential outcomes involve death, we design the rules to prevent people from profiting from death.”
What the plaintiffs argue
The lawsuit contends that the carveout was not a neutral policy neutrally applied — it was foreseeable, and both sides knew it. The filing states: “With an American naval armada amassed on Iran’s doorstep and military conflict not merely foreseeable but widely anticipated, consumers 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. Defendants understood this as well.”
The plaintiffs characterized the policy as “predatory” and an “unfair” business practice. They also pointed to an admission buried inside the litigation itself — that Kalshi, according to the lawsuit filing, “later acknowledged that their prior disclosures were ‘grammatically ambiguous.'”
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After voiding the positions, Mansour announced reimbursements calculated using the “last traded price” before Khamenei‘s death was confirmed. That offer also drew backlash. The plaintiffs say the methodology and precise timestamps used to determine that price point were never disclosed.
Kalshi’s response
The co-founder pushed back against the claims directly, arguing the death policy was clearly stated and that the company absorbed the financial consequences itself. “Kalshi made no money here and even reimbursed all losses out of pocket,” Mansour said. “Not a single user walked away losing money from this market.”
The lawsuit lands as prediction markets are drawing record trading volumes in 2026, with the sector expanding its mainstream footprint. The Kalshi litigation will test how disclosure obligations apply to a class of financial products where the rules — and their ambiguities — can determine whether a trade ever existed at all.
Disclaimer: The information provided in this article is for educational and informational purposes only and does not constitute financial or investment advice.
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