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New York Attorney General Letitia James has sued Kalshi, alleging the prediction market operates an unlicensed gambling business that lets users wager on sports, elections and other events without state approval.
The July 31 case seeks to stop Kalshi’s alleged illegal activity, recover its gains and compensate affected users. Kalshi disputes New York’s authority, arguing that its event contracts fall under exclusive federal derivatives regulation.
New York Targets Sports, Election, and Entertainment Markets
The state argues that Kalshi’s event contracts meet New York’s definition of gambling because users stake money on outcomes they cannot control. Examples cited include the Super Bowl and television competitions such as “Big Brother.”
Kalshi does not hold a license from the New York State Gaming Commission. The attorney general also objects to the platform serving users aged 18 to 20 because New York requires customers to be at least 21 for mobile sports betting.
Lawsuit Seeks Forfeiture and Triple Damages
The lawsuit asks the court to order Kalshi to forfeit its alleged illegal gains. New York also seeks restitution for affected users.
The state is pursuing civil penalties equal to three times the profits allegedly generated through the disputed activity. No penalty has been imposed, and the allegations remain unproven.
Kalshi Moves New York Dispute to Federal Court
Kalshi rejected the allegations and moved the dispute to federal court hours after the state action was filed. The company argues that New York is trying to regulate federally supervised derivatives markets outside its jurisdiction.
Kalshi says its event contracts are listed on a federally regulated prediction exchange and should not be treated as state gambling products. That position puts the lawsuit inside a wider fight over whether state gambling laws can reach CFTC-regulated event contracts.
CFTC Backs Kalshi’s Federal Oversight Argument
The Commodity Futures Trading Commission has taken a similar position. The agency filed an emergency motion seeking to stop New York from applying state gambling laws to Kalshi.
The CFTC argues that federally registered prediction exchanges fall under its exclusive oversight. New York maintains that calling wagers “event contracts” does not remove them from state gambling laws.
July 8 Ruling Left Kalshi Exposed to New York Enforcement
The jurisdictional fight was already underway before the July 31 lawsuit. A federal judge denied Kalshi’s request for an injunction against New York on July 8.
An appeals court later declined to shield the company from enforcement while the appeal continues.
Those rulings left New York free to bring its direct enforcement case as the federal preemption dispute continues.
State Challenges to Prediction Markets Continue Expanding
New York previously brought similar cases against Coinbase and Gemini over prediction market products. Kalshi has faced comparable challenges elsewhere, including actions in Massachusetts, Michigan, Nevada, and Washington.
The New York case adds another direct enforcement action to the wider dispute over whether states can regulate event contracts offered by CFTC-registered exchanges. The next stage will determine whether the case remains in federal court and whether Kalshi can continue serving New York users while the jurisdictional fight proceeds.
