Tennessee Threatens Felonies for Prediction Markets; Kalshi Secures Emergency TRO

The Crisis: Felonies on the Table

The Tennessee Sports Wagering Council (SWC) escalated the war on prediction markets to criminal heights this week, issuing cease-and-desist orders to Kalshi, Polymarket, and Crypto.com. The regulator demanded the platforms halt all sports-related operations, void contracts, and refund user deposits by January 31, 2026. Unlike previous civil warnings, Tennessee explicitly threatened criminal referrals for “aggravated gambling promotion,” a Class E felony carrying prison time and fines up to $25,000 per violation.

The Counterstrike

Kalshi immediately filed suit and secured a Temporary Restraining Order (TRO) from U.S. District Judge Aleta Trauger. The order blocks Tennessee officials from enforcing the ban or pursuing criminal charges until a preliminary injunction hearing scheduled for January 26, 2026. This legal maneuver mirrors Kalshi’s defense in Connecticut, where a separate federal judge paused state enforcement until arguments on February 12. While Kalshi buys time in court, Polymarket, facing its first state-level cease-and-desist since its U.S. relaunch, has yet to confirm a similar legal shield.

The Stakes: It’s Just Sports Betting Now

Regulators are reacting to a fundamental shift in market behavior. Data for the week ending January 11 reveals that 91.1% of Kalshi’s record $2 billion volume came specifically from sports contracts, allowing it to flip Polymarket ($1.5B) in total volume. The “hedging tool” defense is crumbling as liquidity consolidates around what looks, walks, and quacks like parlay betting. While Kalshi fights for its life, the native token of Crypto.com, $CRO, remained largely indifferent to the news, trading flat at $0.10 (+1.4%).

The regulator warned that continued violations could trigger criminal referrals. Aggravated gambling promotion is classified as a Class E felony under Tennessee law.