New York Attorney General Sues Kalshi for Violating State Laws Against Illegal Gambling

New York Attorney General Letitia James has sued prediction markets platform Kalshi for violating state laws against illegal gambling by offering users event contracts on elections, sporting events, and other outcomes.

Kalshi has called the lawsuit “political theater,” while the Commodity Futures Trading Commission (CFTC) has accused the state of trying to “annihilate prediction markets.”

New York Files Lawsuit Against Kalshi

The lawsuit alleges Kalshi operates an illegal gambling operation in New York and asks Kalshi to stop operating in the state, forfeit its illegal gains, pay restitution to users, and pay civil penalties up to three times its gains. James alleges that Kalshi has not obtained a New York State Gaming Commission license to operate in the state.

New York had filed similar lawsuits against Coinbase and Gemini’s prediction market platforms. James said in a statement released Friday:

“New York’s gambling laws protect children from underage betting and help combat gambling addiction. No matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple. We are taking them to court to uphold our laws and protect New Yorkers.”

The latest action comes after the New York State Gaming Commission issued a cease-and-desist order against Kalshi in October 2025. Kalshi responded by suing the regulator in court. However, a judge rejected Kalshi’s request for a preliminary injunction, and the appeals court rejected a subsequent bid to block enforcement action during the appeals process.

Elisabeth Diana, Kalshi’s head of communications, called the action “political theater,” saying:

“It’s sad to see this type of political theater from the leadership in our own state. States can’t just shut down a federally licensed exchange. This would also hurt New Yorkers, who would be driven offshore. We love New York, we love New Yorkers, and New Yorkers love our product.”

The prediction market platform wants to move the lawsuit to Manhattan federal court, stating that it is based in New York. According to court filings, damages and costs could amount to $36 billion, significantly higher than Kalshi’s $22 billion valuation.

CFTC Files Emergency Motion

Prediction markets have gained immense popularity since the 2024 US Presidential elections, and the Commodity Futures Trading Commission (CFTC) has claimed exclusive regulatory oversight over them. The commission has also challenged regulatory attempts by other agencies in nine jurisdictions, including New York.

The regulator filed an emergency motion to block any enforcement action by New York, arguing that it oversteps authority and infringes upon the CFTC’s exclusive authority to regulate contract markets like Kalshi and other prediction market platforms, and threatens to annihilate the industry nationwide.

Kalshi added that by attempting to shut down the platform, New York was subverting the CFTC’s exclusive jurisdiction to regulate prediction market platforms:

“New York seeks to place itself in the position of a nationwide derivatives regulator. Through this action, which seeks to shut Kalshi down nationwide, New York seeks to fundamentally subvert the exclusive jurisdiction of the CFTC.”

Why Does New York See Prediction Markets As Gambling

New York equates Kalshi’s prediction markets with gambling because it allows people to wager on events whose outcomes they do not control. This includes wagering on outcomes like “who wins the Super Bowl” and even reality TV shows.

The state also highlighted that the minimum age under state law for mobile sports betting was 21 and opposed Kalshi allowing 18- to 20-year-olds on its prediction market platform.

New York Governor Kathy Hochul stated:

“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. This choice has consequences.”

Prediction Markets Gaining Popularity

Despite regulatory scrutiny, prediction markets like Kalshi and Polymarket are gaining significant traction. Kalshi has expanded its blockchain-based infrastructure and launched tokenized prediction markets on Solana. It subsequently added support for multiple blockchain networks.

Prediction markets have also grown beyond sports, allowing users to trade event contracts on real-world outcomes like elections, inflation, interest rate cuts or hikes, entertainment, and even daily temperatures.

The popularity of prediction markets surged during the recently concluded FIFA World Cup 2026. According to Chainalysis, prediction markets processed around $20 billion in trading linked to the sporting event.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.