New York Sues Prediction Market Kalshi Over Alleged Illegal Gambling

New York officials have filed a lawsuit against prediction market platform Kalshi, accusing the company of running an "illegal, unlicensed gambling operation" within the state. The lawsuit, filed in Manhattan state court on Friday, seeks to force Kalshi to cease operations and return all profits earned.

This is one of a growing number of lawsuits by U.S. states targeting Kalshi and similar companies, amid a dispute with the Trump administration over who has authority to regulate the rapidly growing prediction market industry. Kalshi and other platforms argue they are federally licensed and regulated, and therefore states lack jurisdiction to intervene.

In the complaint, New York Attorney General Letitia James stated that Kalshi did not obtain a license from the New York State Gaming Commission, despite allowing users to trade on predictions of outcomes for sports events, elections, and other occurrences. James warned that such platforms could encourage problem gambling, including among those under 21, and harm participants' financial, mental, and physical health.

Her office is asking the court to order Kalshi to disgorge all illegal profits, provide restitution to affected consumers, and pay triple the amount of profits earned. Prior to the suit, New York officials and Kalshi had engaged in weeks of negotiations over tax and consumer protection issues but failed to reach an agreement.

This is not James's first lawsuit against prediction platforms. In April, she sued two other platforms, Coinbase Financial Markets and Gemini Titan, calling their event contracts "a poster child" for gambling activities. "New York's gambling laws protect children from underage betting and help combat gambling addiction. Whatever they call themselves, prediction markets like Kalshi are gambling platforms, pure and simple," James said.

Prediction markets such as Kalshi and Polymarket have surged in popularity since the 2024 U.S. presidential election, when they more accurately predicted Trump's victory over Kamala Harris than polls. The U.S. Commodity Futures Trading Commission (CFTC) asserts exclusive authority to regulate prediction market transactions and has challenged state enforcement actions in at least nine states, including the New York lawsuit from April. States, in contrast, argue that most activity on these platforms constitutes sports betting, which falls under their jurisdiction, unlike the commodity and futures contracts CFTC oversees.

In the latest development, the CFTC filed an emergency motion in federal court on Thursday night to prevent New York from applying its gambling laws to Kalshi, calling it an action that "exceeds its authority" and would severely harm the agency and regulated markets. Kalshi, headquartered in New York, has called the lawsuit "a political spectacle from the leadership of our own state" and sought to move the case to federal court in Manhattan just eight hours after the suit was filed. The company emphasized that New York is attempting to "insert itself into the role of a national derivatives regulator" and seeking to "upend the CFTC's exclusive jurisdiction" through its action to shut Kalshi down nationwide.

A federal appeals court in Manhattan rejected Kalshi's request on Wednesday to avoid potential enforcement actions while the company appeals a July ruling by District Judge Analisa Torres that declined to issue a preliminary injunction against the state. Kalshi had previously taken proactive steps, suing New York last October to block enforcement actions.

According to the New York lawsuit, Kalshi's prediction markets are considered gambling because participants bet on events whose outcomes they do not control, such as the Super Bowl winner or the winner of the reality TV show "Big Brother." New York also objected to Kalshi allowing users aged 18 to 20, while state law requires mobile sports bettors to be at least 21. New York Governor Kathy Hochul stated: "Kalshi has chosen to ignore New York's gaming laws, which exist to protect consumers, prevent problem gambling, provide funding for critical public services, and ensure every company plays by the same rules. That choice will have consequences."

At least four states—Massachusetts, Michigan, Nevada, and Washington—have obtained court orders restricting Kalshi's operations. In her decision denying Kalshi's request to block potential enforcement by New York, Judge Torres found that the state's interests in preventing gambling addiction, maintaining sports integrity, and avoiding the growth of unregulated contracts "far outweighed" Kalshi's interests in ensuring federal law supremacy and avoiding "difficult-to-solve" technical issues for customers.

Meanwhile, on Monday, a federal judge temporarily blocked Minnesota's first-in-the-nation law banning prediction markets, just days before it was set to take effect—a setback for states seeking to ban or regulate these platforms.