New York Accuses Kalshi of Operating an Illegal Gambling Platform as States Challenge Prediction Markets and Federal Regulators Defend Their Authority
State officials accuse the federally regulated prediction market of offering unlicensed sports wagering, avoiding taxes and allowing users younger than New York’s legal betting age.
New York officials filed a lawsuit Friday against prediction market platform Kalshi, accusing the company of operating an illegal, unlicensed gambling business and seeking an estimated $36 billion in penalties, restitution and forfeited profits.
Gov. Kathy Hochul and Attorney General Letitia James announced the lawsuit, which was filed in New York State Supreme Court in Manhattan. The state is asking the court to halt Kalshi’s operations in New York and require the company to surrender money allegedly earned through unlawful wagering.
Kalshi disputes the state’s characterization of its business, arguing that it operates as a federally licensed financial exchange rather than a gambling platform.
“It’s sad to see this type of political theater from the leadership in our own state,” Kalshi spokesperson Elisabeth Diana said in a statement. “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.”
New York Says Prediction Markets Are Gambling
Prediction markets such as Kalshi and Polymarket allow customers to buy and sell contracts based on whether certain events will occur. Available markets can involve sports, elections, breaking news, economic developments and weather.
Although the companies describe the transactions as event contracts traded between consumers, New York officials contend that the activity meets the state’s legal definition of gambling because customers risk money on outcomes they cannot control.
“New York’s gambling laws protect children from underage betting and help combat gambling addiction,” James said. “No matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple.”
James accused Kalshi of ignoring New York law, harming consumers and operating without a license from the state Gaming Commission.
According to the lawsuit, Kalshi also avoided taxes and regulatory requirements imposed on licensed casinos and mobile sports betting companies. State officials noted that Kalshi permits customers between the ages of 18 and 20 to participate, while New York requires mobile sports bettors to be at least 21.
The attorney general’s office is seeking restitution for affected consumers, forfeiture of allegedly illegal profits and financial penalties equal to three times the company’s gains. A court filing placed the state’s estimated damages and related costs at $36 billion.
Kalshi had reportedly been negotiating with New York officials in recent weeks over taxes and consumer protections.
Federal and State Regulators Clash Over Authority
The lawsuit is part of a widening legal battle over whether prediction markets should be regulated by states as gambling businesses or by the federal government as financial exchanges.
The New York lawsuit comes just days after a federal judge temporarily blocked Minnesota’s first-in-the-nation ban on prediction markets.
The judge found that Kalshi, Polymarket and the Commodity Futures Trading Commission were likely to succeed in arguing that federal law gives the commission exclusive authority over event contracts, highlighting the same jurisdictional dispute now at the center of New York’s case.
Kalshi argues that the federal Commodity Exchange Act gives the U.S. Commodity Futures Trading Commission exclusive authority over the event contracts offered on its platform.
The company maintains that its customers trade against one another in a structure similar to a stock exchange. Kalshi collects transaction fees rather than accepting wagers against customers, according to the company.
States argue that much of the activity on prediction market platforms amounts to sports betting, an industry traditionally governed through state gambling laws.
In February, the Trump administration’s appointee leading the federal commission said the agency would no longer remain on the sidelines while states attempted to regulate or prohibit prediction markets.
Also Read: Online Betting Expands As Public Skepticism Grows
The New York Gaming Commission ordered Kalshi last October to stop operating what the commission described as an unlicensed mobile sports wagering platform. Kalshi responded by suing the commission and its members in federal court. That case remains pending.
New York filed similar lawsuits in April against prediction market operations connected to Coinbase and Gemini.
The broader fight has produced mixed court rulings. A federal judge temporarily blocked Minnesota’s first-in-the-nation prediction market ban Monday, days before the law was scheduled to take effect. Another federal judge temporarily stopped Arizona from enforcing its gambling laws against prediction market companies in April.
The federal government has also sued Connecticut, Arizona and Illinois over state efforts to regulate the industry.
The expanding collection of lawsuits could ultimately determine whether prediction markets remain primarily under federal commodities oversight or must also comply with individual state gambling laws.
