New York Sues Kalshi as Battle Over Prediction Markets Escalates

New York has intensified its campaign against prediction markets, taking legal action against Kalshi and arguing that the federally regulated platform is operating an illegal gambling business inside the state.

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The lawsuit, filed by Attorney General Letitia James in a Manhattan state court, accuses Kalshi of offering event-based contracts without the gaming license required under New York law. State officials contend that the platform allows users to wager on outcomes ranging from sporting events to elections and television competitions, placing it within the state’s definition of gambling.

State and Federal Regulators Clash

The case is the latest chapter in a widening jurisdictional dispute over who controls the fast-growing prediction market industry.

New York maintains that platforms such as Kalshi must comply with state gambling rules, regardless of their federal status. Regulators argue that unlicensed event contracts expose consumers to gambling-related harm, increase the risk of underage participation, and bypass protections built into the state’s betting framework.

Kalshi rejects that position. The company insists its exchange falls under the exclusive oversight of the U.S. Commodity Futures Trading Commission (CFTC) and has dismissed New York’s lawsuit as politically motivated.

The federal regulator has also entered the fight. Less than an hour before the state filed its latest lawsuit, the CFTC asked a federal court to block New York’s enforcement efforts, arguing that state intervention threatens the agency’s authority and could disrupt federally regulated markets.

Courts Continue to Side With States

Kalshi has spent months trying to stop New York from enforcing its gambling laws.

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Earlier this week, a federal appeals court declined to shield the company while its broader legal challenge continues. That decision left in place a lower court ruling from July, where a judge concluded that New York’s interest in limiting gambling addiction, protecting sports integrity, and preventing unregulated betting markets outweighed Kalshi’s request for federal protection.

The company had already sued New York last October in an attempt to prevent enforcement before state regulators took action.

Age Limits and Event Contracts Under Scrutiny

New York’s petition focuses on the nature of Kalshi’s markets, arguing that users are effectively betting on events they cannot influence. The filing points to contracts tied to outcomes such as the Super Bowl and the reality television series Big Brother as examples of gambling activity under state law.

Officials also object to Kalshi allowing customers between 18 and 20 years old to trade on the platform, while New York requires participants in mobile sports betting to be at least 21.

The state is seeking an order to halt Kalshi’s operations in New York, recover what it describes as unlawful profits, impose civil penalties worth three times those gains, and provide restitution to affected customers.

The lawsuit follows similar actions filed earlier this year against Coinbase Financial Markets and Gemini Titan, reflecting New York’s broader effort to classify prediction market event contracts as gambling products. Meanwhile, at least four other states—Massachusetts, Michigan, Nevada, and Washington—have already secured court orders limiting Kalshi’s activities, leaving the company facing legal challenges on multiple fronts as the debate over state versus federal oversight continues.

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Source: www.reuters.com