New York Sues Kalshi, Alleges 'Illegal Gambling Operation'

New York State has filed a lawsuit against prediction market operator Kalshi, alleging it is running an 'illegal gambling operation' in violation of state laws. Announced by New York Governor Kathy Hochul and Attorney General Letitia James, the lawsuit seeks to halt Kalshi's operations in New York, force it to forfeit its illicit profits, provide restitution to harmed consumers, and pay fines equal to three times its gains. State officials assert that Kalshi has failed to obtain a license from the New York State Gaming Commission, evaded taxes, and allowed underage users to participate.

Kalshi launched in 2021 as a platform allowing users to buy and sell contracts tied to the outcome of future events, expanding into sports 'trading' in 2025. New York state claims that Kalshi's prediction markets constitute a form of gambling because users wager on uncertain events they cannot control. In October 2025, the New York State Gaming Commission issued a cease-and-desist order to Kalshi, instructing it to stop its operations as an 'unlicensed mobile sports wagering platform.' Kalshi responded by filing a federal lawsuit against the commission, seeking to block state enforcement.

However, U.S. District Judge Analisa Torres, on July 8, 2026, denied Kalshi's bid for a preliminary injunction to prevent New York from enforcing its gambling laws against the platform. Judge Torres ruled that the federal Commodity Exchange Act (CEA) does not supersede New York's gambling laws as applied to Kalshi's sports-event contracts. The court noted that the power to regulate gambling is a traditional police power exercised by New York and that the CEA's grant of exclusive jurisdiction does not entirely preclude state laws. Kalshi has since appealed this decision to a higher court.

Kalshi, for its part, maintains that its platform offers federally regulated event contracts overseen by the Commodity Futures Trading Commission (CFTC) and that its services differ from traditional sports betting. This lawsuit is part of a broader regulatory tug-of-war across the United States over whether prediction market operators should be federally regulated as financial exchanges or classified as gambling businesses subject to state gambling laws. The CFTC has also filed lawsuits against states, including Arizona, Connecticut, and Illinois, asserting its exclusive jurisdiction over prediction markets.

This legal battle could have significant implications for the future of the prediction market industry. Gaming industry representatives, such as the American Gaming Association, support New York's lawsuit, estimating that prediction markets have diverted over $1.2 billion in tax revenue from states. Analysts suggest that this lawsuit and similar legal proceedings may lead to a clearer framework for the legal classification and regulatory oversight of prediction markets. In the coming period, these platforms may either need to comply with state gambling laws or gain a more definitive definition as financial products at the federal level.