Plaintiff law firm Lieff Cabraser said it is investigating Kalshi over the settlement of a prediction market tied to the fate of Iranian Supreme Leader Ali Khamenei, raising the possibility of a class-action lawsuit against the CFTC-regulated exchange.The inquiry follows controversy around Kalshi’s “Ali Khamenei out as Supreme Leader” market, which attracted more than $50 million in trading volume.🚨FOR IMMEDIATE RELEASE March 3rd, 2026 Kalshi “Khamenei Out” InvestigationPremier Plaintiff Law Firm, Lieff Cabraser has been retained to investigate Kalshi for unfair and improper practices connected to its “Ali Khamenei out as Supreme Leader” markets where consumers…— RealBenGeller (@RealBenGeller) March 3, 2026When reports of Khamenei’s death emerged on February 28, many traders holding “Yes” positions expected a full payout.Instead, Kalshi halted the market and later settled contracts based on the last traded price before the news broke. The exchange invoked a contractual “death carve-out” clause, which prevents markets from settling to “Yes” if the outcome involves a person’s death — a restriction tied to U.S. regulatory rules.Dispute Over Settlement RulesThe outcome prompted criticism from some users, who said the carve-out was not sufficiently clear. Lieff Cabraser said it is examining whether the platform’s disclosures and promotion of the market could have misled traders.Kalshi says the settlement followed its published rules. In a post on X, CEO Tarek Mansour wrote that the carve-out had been included in the contract terms from the start and disclosed both on the market page and in filings with the Commodity Futures Trading Commission.“Traders expect us to settle the market based on the rules,” Mansour said, adding that altering the settlement after the fact would undermine trust in the exchange.On Khamenei: We don’t list markets directly tied to death. When there are markets where potential outcomes involve death, we design the rules to prevent people from profiting from death. That is what we did here. I know some of you disagree and prefer that we list these…— Tarek Mansour (@mansourtarek_) March 1, 2026The company also said it reimbursed all trading fees and covered net losses so that no trader ended the market net-negative. According to Mansour, those reimbursements resulted in a financial loss for the firm.Regulated Markets Under PressureThe episode highlights the challenges facing regulated prediction markets that attempt to offer contracts tied to real-world events.Unlike offshore platforms such as Polymarket, which resolved its similar market to “Yes,” Kalshi operates under U.S. commodity laws that prohibit contracts allowing direct profit from death or assassination. That regulatory constraint shapes both the types of markets the platform can list and how they must be settled.The dispute has drawn attention from lawmakers as well. Some U.S. senators have previously urged regulators to examine event contracts tied to violence or geopolitical instability.For the broader prediction market sector, the case illustrates the tension between market demand for event-based contracts and the legal limits placed on regulated exchanges.This article was written by Tanya Chepkova at www.financemagnates.com.