New York sues Kalshi after exchange loses key ruling in prediction market fight

New York has escalated its legal battle against Kalshi, suing the prediction market after a federal judge declined to block the state from enforcing its gambling laws against the company.

The lawsuit deepens a dispute over whether federally regulated prediction markets fall under state gambling laws. 

While Kalshi argues that oversight by the Commodity Futures Trading Commission [CFTC] shields it from state licensing requirements, New York contends the platform is operating an unlicensed gambling business.

New York accuses Kalshi of violating gambling laws

New York Attorney General Letitia James filed the petition on July 31 in the New York County Supreme Court. Kalshi removed the case to the US District Court for the Southern District of New York later the same day.

According to the petition, Kalshi accepted wagers on sports, elections, and entertainment events without obtaining approval from the New York State Gaming Commission.

The state brings eight legal claims, including alleged violations of New York’s gambling, sports wagering, and bookmaking laws, as well as the federal Wire Act.

New York also alleges that Kalshi accepted customers aged 18 to 20, despite the state’s minimum age of 21 for mobile sports betting.

Additional allegations concern contracts tied to New York college teams, combination markets resembling parlays, and transactions that investigators say were completed using a New York-based account.

The Attorney General is seeking an injunction preventing Kalshi from operating in New York without a licence, along with restitution, disgorgement, an accounting, and statutory penalties.

Although some reports have estimated potential liability at $36 billion, the petition itself does not seek a fixed damages figure. Instead, it requests $100,000 for each unauthorised sports wagering offer, together with three times Kalshi’s alleged gains where permitted.

Earlier court ruling strengthened New York’s position

The lawsuit follows an important setback for Kalshi earlier this month.

On July 7, US District Judge Analisa Torres denied the company’s request for a preliminary injunction that would have prevented New York regulators from enforcing state gambling laws while the broader dispute continues.

Kalshi argued that, as a federally regulated derivatives exchange overseen by the CFTC, federal commodities law pre-empts state gambling regulation.

Judge Torres concluded that Kalshi had not demonstrated a sufficient likelihood of success on that argument at the preliminary injunction stage.

Kalshi has appealed the ruling.

The latest lawsuit also expands the dispute beyond sports-event contracts by challenging election and entertainment markets, potentially broadening the legal questions the courts will eventually need to address.

Insider trading remains a separate issue

Separately, Kalshi has introduced new market integrity measures to reduce the risk of insider trading.

The exchange now requires employment disclosures from participants trading in certain sensitive markets, while members of Congress continue to examine how prediction platforms identify trading based on non-public information.

Those measures, however, are unrelated to New York’s lawsuit.

The state’s claims focus on licensing requirements, age restrictions, and whether Kalshi’s event contracts amount to gambling under New York law.

Final Summary

• New York has sued Kalshi after the exchange failed to secure a preliminary injunction blocking enforcement of the state’s gambling laws.
• The case will test whether federal regulation by the CFTC pre-empts state gambling laws as prediction markets continue to expand across the US.