At issue in the lawsuit is a refusal by online prediction market Kalshi to grant winnings to customers after the US-Israeli siege killed Ayatollah Ali Khamenei.

The company has said its policy is to not list markets directly tied to death.

Plaintiffs are demanding $54 million in damages, arguing that their bet that Khamenei was "out as Supreme Leader" by March 1 came to pass, according to a class-action lawsuit filed in US district court in California.

Kalshi's "death carveout" was "not adequately disclosed to consumers," the complaint added.

The case "exposes a predatory scheme to exploit retail consumers in the emerging prediction market industry," said the complaint, which called Kalshi "the poster child of unfair competition, deceptive corporate behavior and consumer fraud."

Kalshi CEO Tarek Mansour defended the company on X, saying the platform reimbursed customers who lost money on the bet.

"Kalshi made no money here," Mansour said. "Kalshi's rules prevented a 'death market,' where traders directly profit from death."

Polymarket, another online platform, has also faced questions in recent days as some lawmakers on Capitol Hill express discomfort with bets connected to military action.

One Polymarket account made more than $100,000 in bets connected to Iran and the US seizure of former Venezuelan leader Nicolas Maduro.

Lawmakers have also pointed to the risk of insider trading based on the risk high-ranking officials will bet on military outcomes.

Democratic Senators Jeff Merkley of Oregon and Amy Klobuchar of Minnesota introduced the "End Prediction Corruption Act" that would ban the president, members of Congress and other officials from trading event contracts.

Connective Democrat Senator Chris Murphy pointed to a "suspicious amount of new activity" on the eve of the Iran attack, saying on X that it was "very likely" that they were made by people "with inside information."