New York sues Kalshi, calls it illegal gambling

New York Attorney General Letitia James filed a lawsuit against prediction market platform Kalshi on Friday, alleging the company operates an “illegal, unlicensed gambling operation” and seeking $36 billion in damages. The case, lodged in Manhattan state court, marks the latest escalation in a legal battle over whether states or federal regulators hold authority to oversee prediction markets, which allow users to wager on outcomes of events ranging from sports to elections.

The lawsuit accuses Kalshi of violating New York’s gambling laws by offering “event contracts” without a state gaming license. James argued that the platform’s activities meet the legal definition of gambling, citing its focus on uncertain outcomes beyond users’ control, such as sports results or political elections. She also criticized Kalshi for permitting users as young as 18 to participate, violating the state’s 21-year-old minimum age for mobile sports betting. “No matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple,” James stated.

Kalshi, based in New York, has dismissed the lawsuit as “political theater” and asserted that federal regulators, not state authorities, have jurisdiction over its operations. The company pointed to the U.S. Commodity Futures Trading Commission (CFTC), which has claimed exclusive oversight of prediction markets under the Commodity Exchange Act. The CFTC filed an emergency motion in federal court to block New York’s enforcement efforts, arguing that state gambling laws could undermine federal commodities regulation. “New York seeks to place itself in the position of a nationwide derivatives regulator,” Kalshi said in a statement, warning that the lawsuit could force users to seek alternatives offshore.

The legal dispute reflects a broader conflict over regulatory authority. New York joins at least four other states — Massachusetts, Michigan, Nevada, and Washington — that have secured court orders restricting Kalshi’s activities. In April, New York also sued Coinbase Financial Markets and Gemini Titan, alleging similar violations. The state’s petition cited a 2025 cease-and-desist order from the New York State Gaming Commission, which Kalshi countered by filing a federal lawsuit against the regulator. A federal judge rejected Kalshi’s bid to block enforcement in July, and an appeals court later upheld that decision.

Kalshi’s defense hinges on its classification as a federally licensed exchange. The company argues that its model differs from traditional gambling, as users trade against one another rather than against a house, with prices reflecting market probabilities. “Prediction markets like Kalshi are not gambling, they are financial instruments,” said Elisabeth Diana, Kalshi’s head of communications. The platform has also expanded into blockchain-based infrastructure, launching tokenized markets on Solana in late 2025 and later supporting multiple blockchains. This shift, analysts note, underscores the industry’s evolution and the challenges of regulating decentralized systems.

The case has drawn attention amid the rapid growth of prediction markets, which saw heightened popularity after the 2024 U.S. presidential election. Platforms like Kalshi and Polymarket have attracted billions in trading volume, with blockchain-based markets processing $20 billion in bets tied to the 2026 FIFA World Cup alone. However, regulators have raised concerns about problem gambling, particularly among younger users, and the lack of state tax revenue from unlicensed operations.

New York’s lawsuit seeks to halt Kalshi’s “alleged unlawful conduct,” recover “illegal gains,” and impose civil fines equal to three times those gains. The state’s legal team emphasized its interest in preventing gambling addiction and preserving the integrity of sports, arguing that Kalshi’s activities pose risks to public health and financial stability. “Kalshi has chosen to ignore New York’s gaming laws, which exist to protect consumers,” said Governor Kathy Hochul, a Democrat.

The outcome of the case could set a precedent for how prediction markets are regulated nationwide. The CFTC’s emergency motion and New York’s pursuit of enforcement remedies highlight the tension between state and federal authorities. Legal experts suggest the courts may soon clarify whether states can apply gambling laws to platforms operating under federal oversight. Meanwhile, Kalshi’s legal team has vowed to challenge the lawsuit, framing it as an overreach that could stifle innovation in financial markets.