New York Attorney General Letitia James (D) sued prediction market platform Kalshi on Friday, accusing the federally regulated exchange of operating an illegal gambling business in the state, escalating a growing legal battle over whether prediction markets fall under state gambling laws or exclusive federal oversight.
The lawsuit seeks to block Kalshi from continuing to offer its contracts in New York, arguing the company has repeatedly violated state gaming laws by allowing users to wager on everything from elections to the weather.
“A temporary injunction is necessary to protect the people of the State of New York from Kalshi’s repeated and persistent illegal practices and to contain the irreparable harm that widely available, illegal mobile gambling poses to problem gamblers and populations susceptible to addiction,” the lawsuit states.
What is being alleged?
The attorney general’s office said it is seeking a court order barring Kalshi from operating as an unlicensed gambling business in New York, along with civil penalties, forfeiture of profits, and restitution for users.
“Kalshi has chosen to ignore New York’s gaming laws, which exist to protect consumers, prevent problematic gambling, deliver funding for critical public services, and ensure that every company plays by the same rules,” Gov. Kathy Hochul (D-NY) said in a statement. “This choice has consequences, and working closely with Attorney General James, New York is taking action to stop this illegal behavior and bring Kalshi into compliance, because no company is above the law.”
Kalshi blasted the lawsuit as politically motivated.
“It’s sad to see this type of political theater from the leadership in our own state,” a Kalshi spokesperson said. “States can’t just shut down a federally licensed exchange. This would also just hurt New Yorkers, who would be driven offshore. We love New York, we love New Yorkers, and New Yorkers love our product.”
The lawsuit comes just two days after a federal appeals court declined Kalshi’s request to pause a lower court ruling that found New York’s gambling laws could apply to the company despite its federal regulation.
Hours later, the Commodity Futures Trading Commission asked the federal judge overseeing the case to block New York from taking enforcement action, arguing that Congress gave the agency exclusive authority over prediction markets.
“Altogether, allowing New York to enforce its gambling laws against CFTC-regulated entities has the potential for a single state to bring entire federally regulated markets to the brink of destruction,” the CFTC wrote in a court filing.
In April, the agency sued New York after the state attempted to enforce its gambling laws against CFTC-registered exchanges through cease-and-desist letters and civil lawsuits. The regulator is seeking a declaration that federal law preempts state gambling laws in this area, along with a permanent injunction barring New York from taking enforcement action against CFTC registrants.
“CFTC-registered exchanges have faced an onslaught of state lawsuits seeking to limit Americans’ access to event contracts and undermine the CFTC’s sole regulatory jurisdiction over prediction markets,” CFTC Chairman Michael Selig said. “As I’ve said before, the CFTC will not allow overzealous state governments to undermine the agency’s longstanding authority over these markets.”
Federal vs. state authority
The dispute is the latest in a wave of litigation over prediction markets, which allow users to buy and sell contracts tied to the outcome of future events, ranging from elections and economic indicators to reality television competitions.
At the center of the legal fight is whether those event contracts qualify as “swaps” or other derivatives under the Commodity Exchange Act, placing them under the exclusive jurisdiction of the CFTC, or whether states may regulate them as gambling.
Federal law defines swaps broadly as contracts in which parties exchange value based on the outcome of an underlying event, asset, rate, or index. Kalshi argues its event contracts fall squarely within that framework, making them subject solely to federal oversight.
New York, along with a slew of other states, disagrees, contending the contracts amount to illegal gambling under state law regardless of their federal registration.
Conflicting court rulings
Meanwhile, courts around the country have reached different conclusions.
Prediction market lawsuits set stage for major court battles
Earlier this week, a federal judge in Minnesota blocked the state from enforcing its gambling laws against Kalshi and Polymarket, concluding the exchanges are federally regulated designated contract markets and that the CFTC has exclusive authority over the transactions at issue.
Other states have fared better. Nevada, Michigan, and Washington have successfully halted some or all of Kalshi’s operations through litigation, although the company continues to challenge those rulings.