Susquehanna's inclusion in Utah suit reshapes market-maker liability

Utah's Third District Court complaint, filed October 20, names not just Kalshi but two Susquehanna trading firms — the first time a state has named a market maker as a co-defendant alongside a prediction market operator. Attorney General Derek Brown is seeking up to $61.2 million based on what his office estimates as more than $3 billion in trades placed by over 32,000 Utah accounts. Whether or not the damages figure survives litigation, the defendant list is the development that carries.

Susquehanna became Kalshi's primary liquidity provider roughly two years ago, then expanded that arrangement in August through a block trading structure involving Cantor Fitzgerald. Utah has now drawn a line from that liquidity provision to direct state liability. The theory, as the complaint frames it: Susquehanna's firms were not passive infrastructure. They settled contracts and paid winners. Under Utah's reading of its own gambling statutes, that makes them participants in unlawful gambling transactions, not bystanders to someone else's.

Kalshi's response is predictable and not wrong on the law as it currently stands in one circuit. The Third Circuit found this spring that the Commodity Exchange Act bars state regulation of sports event contracts on prediction markets. Kalshi is a CFTC-regulated exchange. Federal preemption is a real argument. The problem is that the Ninth Circuit reached the opposite conclusion, and New Jersey has now asked the Supreme Court to resolve the split. Until it does, the enforceability of any single circuit's ruling is geographically bounded.

Utah sits in the Tenth Circuit, which has not ruled. Judge Robert Shelby denied Kalshi's preemption argument in August — that decision is now on appeal to the Tenth Circuit, with no ruling yet. Brown's civil complaint lands in state court while the federal appeal is pending, which means Utah is running two tracks simultaneously. If the Tenth Circuit rules for Kalshi on preemption before this civil case advances, the state court proceedings become significantly harder to sustain. If it doesn't, Brown's $61.2 million demand becomes the floor of a much longer negotiation.

The market-maker exposure is where I think the analysis has not caught up. Every major prediction market that operates at scale runs on institutional liquidity. Without it, the spreads widen and volume collapses. If Utah's theory holds — that settling contracts and paying out winners constitutes participation in illegal gambling — then any firm providing that function in a non-preempted jurisdiction faces state liability for the full volume of transactions it touched. That is not an abstract structural argument. It is the specific mechanism by which states could make prediction markets operationally impossible even if they cannot shut down the exchange itself.

I have seen this approach used in adjacent contexts: target the infrastructure provider rather than the principal, because the infrastructure provider has less appetite for prolonged litigation and more exposure to reputational risk. Susquehanna is a major institutional trading firm with relationships that extend well beyond Kalshi. The calculation of whether to continue as a liquidity provider changes when your firm's name appears on a state civil complaint seeking tens of millions in restitution.