Whatnot faces more than 70 claims that card breaks are illegal lottery

Whatnot faces more than 70 arbitration claims alleging that its card breaks operate as an illegal lottery. Lawyer Paul Lesko announced 15 arbitration requests on behalf of more than 30 clients against Whatnot in March 2026, and has since filed complaints for more than 70 people, the report said. The claims argue that breaks function as an illegal lottery and that part of what occurs on the platform amounts to fraud.

The claims rest on California law. Section 319 of the California Penal Code defines an illegal lottery through three elements: payment, chance and prize, according to the report. Lesko said the platform does not offer the protections required of licensed digital casinos, such as self-exclusion or effective spending limits. The requests are governed by the March 2026 update to the platform's Terms of Service, which imposes individual, private arbitration instead of class action.

A separate public action is also reported. A whistleblower suit under the California False Claims Act accuses Fanatics Live and Whatnot of operating unlicensed lotteries through random breaks; the state Department of Justice declined to intervene. No US regulator or attorney-general has publicly stated whether breaks constitute gambling, and the California Gambling Control Commission says that definition falls to the attorney-general, the report said.

Whatnot closed a $545m Series G round on 7 August, nearly doubling its market value to $20bn from $11.5bn 10 months earlier. The platform moved more than $8bn in goods in 2025, more than double the previous year, with more than 20 million accounts created that year alone. In a video interview cited by the report, Wall Street Journal reporter Hannah Krueger said the average user spends about 95 minutes a day on the app and that annual revenue is approaching $1bn.

The report describes the mechanics of breaks: a sealed box of collectible cards is divided into slots sold to several buyers and opened live. A buyer who pays $1,000 may receive a card worth $20,000 or one worth $20, according to the report. The WSJ report cited an accountant aged 45 who spent almost $1.4m in four months, drawing on savings, loans and an employer corporate card, before his wife filed for divorce. Mark Leiser, a specialist in deceptive design who has taught digital law at Leiden, said the auctions leave no real moment of decision, an effect he calls degradation of consent.

Whatnot denies the allegations. In a statement, the company said gambling is not permitted on the platform and that breaks are a traditional genre of collecting, according to the report. Krueger said the central argument is that the user always receives a physical item, unlike someone who loses at a blackjack table. CEO Grant LaFontaine cited a 4.7 rating on the App Store and said excessive spending does not appear as a relevant problem in the company's data.

The company already offered optional spending and screen-time limits, has released a tool that pauses purchases immediately and plans to test a password-protected purchase step, the report said. Whatnot also doubled its trust and safety team, which now accounts for about one third of its approximately 1,200 employees.

The platform operates in North America, the UK and Europe, and Latin America remains largely unexplored for the format, according to the report, while the Series G funds include expansion into new markets. It was reported that if the model arrived in Brazil it would meet a hostile legal environment: payment, chance and prize are the elements that Brazilian lottery law (Decree-Law 6,259/1944) reserves to the public authorities or authorised operators, and Law 14,790/2023 covers only fixed-odds betting. The report also cited article 20 of Law 15,211/2025, the Digital ECA, which prohibits reward boxes in electronic games aimed at children and adolescents or likely to be accessed by them, treating such mechanics as equivalent to gambling.