New York Files Suit Against Kalshi, Calls Prediction Markets Unlicensed Gambling

New York has intensified its fight with Kalshi, filing suit after a federal judge declined to stop the state from enforcing its gambling laws against the prediction-market operator. The case sharpens a central question for the fast-growing sector: whether federally regulated prediction markets are still subject to state gambling rules. Kalshi maintains that oversight by the Commodity Futures Trading Commission (CFTC) insulates it from state licensing requirements. New York argues the platform is running an unlicensed gambling operation. New York Attorney General Letitia James filed the petition on July 31 in New York County Supreme Court. Kalshi removed the matter to the U.S. District Court for the Southern District of New York later that day. According to the petition, Kalshi accepted wagers tied to sports, elections and entertainment without approval from the New York State Gaming Commission. The state asserts eight claims, citing alleged violations of New York gambling, sports wagering and bookmaking laws, along with the federal Wire Act. The filing also alleges Kalshi accepted customers aged 18 to 20, despite New York's minimum age of 21 for mobile sports betting. Other allegations involve contracts linked to New York college teams, combination markets resembling parlays, and transactions investigators say were executed using a New York-based account. The Attorney General is seeking an injunction barring Kalshi from operating in New York without a licence, plus restitution, disgorgement, an accounting and statutory penalties. While some reports have estimated potential exposure at $36 billion, the petition does not demand a set dollar amount. It seeks $100,000 per unauthorised sports-wagering offer, and triple Kalshi's alleged gains where permitted. The lawsuit follows a key setback for Kalshi earlier this month. On July 7, U.S. District Judge Analisa Torres denied Kalshi's request for a preliminary injunction that would have blocked New York regulators from enforcing state gambling laws while the broader dispute plays out. Kalshi argued federal commodities law preempts state gambling regulation for a CFTC-regulated derivatives exchange. Judge Torres found Kalshi had not shown a sufficient likelihood of success on that theory at the preliminary-injunction stage. Kalshi has appealed. The new filing also pushes beyond sports-event contracts, targeting election and entertainment markets and potentially widening the legal issues the courts may ultimately need to resolve. Separately, Kalshi has rolled out additional market-integrity measures aimed at reducing insider-trading risk, including employment disclosures for traders in certain sensitive markets. Lawmakers continue to scrutinize how prediction platforms detect trading based on nonpublic information. Those steps are not part of New York's lawsuit, which centers on licensing, age limits and whether Kalshi's event contracts constitute gambling under state law. Final Summary: New York sued Kalshi after the exchange failed to win a preliminary injunction blocking enforcement of the state's gambling laws. The case will help determine whether CFTC regulation preempts state gambling rules as prediction markets expand across the U.S.