Kalshi is facing a $54 million class action lawsuit after traders accused the prediction market of invoking a “death carveout” clause to avoid paying bets tied to the killing of Iran’s supreme leader, according to reporting from Reuters.

Kalshi was sued in federal court Thursday over contracts that asked whether Ayatollah Ali Khamenei would leave office before March 1, 2026, according to a class action complaint.

Khamenei, 85, was killed Saturday in U.S.-Israeli strikes that left hundreds dead, including top Iranian officials. The strikes occurred under Operation Epic Fury.

The lawsuit says customers were drawn to what it calls the “Khamenei Market” because of the shifting geopolitical situation with Iran’s leadership. It alleges that, after Khamenei was killed, Kalshi invoked a “death carveout” provision to avoid paying customers what they were owed.

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Iranian Supreme Leader Ali Khamenei addresses the nation in a state television broadcast June 18, 2025, in Tehran, Iran.  (Office of the Supreme Leader of Iran via Getty Images / Getty Images)

“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,” the lawsuit states.

“Defendants understood this as well.”

The complaint argues the contract language was “clear, unambiguous and binary” and accuses Kalshi of “deceptive” and “predatory” conduct.

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A billboard for Kalshi showing 2024 U.S. presidential election odds across from the Nasdaq MarketSite in New York Nov. 6, 2024. (Michael Nagle/Bloomberg via Getty Images / Getty Images)

The lawsuit was filed in the U.S. District Court for the Central District of California.

The company’s CEO, Tarek Mansour, on Saturday defended the “death carveout,” saying it “keeps the rules simple.” He also said Kalshi would reimburse all fees from the Khamenei market.

Prediction markets have exploded in popularity since the 2024 U.S. election, when their real-time probabilities proved more accurate than polling in forecasting Donald Trump’s victory, according to Reuters.

Two Iranian-made unmanned aerial vehicles are displayed at Azadi Square during a rally to mark the 44th anniversary of the victory of Iran’s 1979 Islamic Revolution, in Tehran, Iran, Feb. 11, 2023.  (Morteza Nikoubazl/NurPhoto via Getty Images / Getty Images)

Platforms like Kalshi offer tradable yes-or-no contracts tied to real-world events ranging from politics and sports to the economy. Contracts typically cost between zero and 100 cents and pay out if a specified outcome is confirmed.

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Kalshi did not immediately respond to FOX Business’ request for comment.

Reuters contributed to this reporting.