Kalshi sued by New York over illegal gambling allegations

New York has filed a lawsuit against Kalshi, a prediction market platform, alleging it operates as an “illegal, unlicensed gambling operation” and seeking billions in damages. The action, announced on Friday, is a notable escalation in the state’s efforts to regulate or shut down prediction markets, which have become a focal point of legal and political battles between state authorities and federal regulators.

The lawsuit, filed in New York State Supreme Court in Manhattan, accuses Kalshi of violating the state’s gambling laws by allowing users to bet on events ranging from sports outcomes to political elections. New York Attorney General Letitia James and Governor Kathy Hochul, both Democrats, argue that the platform’s activities meet the legal definition of gambling because they involve “uncertain outcomes” and “chance,” despite Kalshi’s claims of being a federally licensed financial market. The state seeks to force Kalshi to forfeit all profits, pay restitution to users, and face fines equal to three times its earnings—a total of $36 billion, according to court filings.

Kalshi, which has faced similar lawsuits from other states, has defended itself by emphasizing its federal oversight. The company’s spokesperson, Elisabeth Diana, called New York’s action “political theater” and warned that shutting down the platform would drive users to unregulated offshore markets. “States can’t just shut down a federally licensed exchange,” she said. “This would also hurt New Yorkers, who would be driven offshore.” Kalshi argues that its model differs from traditional gambling because users trade against one another, akin to stock markets, with the platform only collecting a fee on transactions.

The legal dispute reflects a broader conflict over jurisdiction. New York and other states contend that prediction markets fall under their gambling authority, particularly when they involve sports betting, which is already regulated at the state level. Kalshi and its allies, including federal regulators, counter that the U.S. Commodity Futures Trading Commission (CFTC) has exclusive authority over such platforms. In February, a Trump-appointed CFTC official warned that states risk undermining federal jurisdiction by attempting to regulate prediction markets.

The case also highlights the growing scrutiny of prediction markets amid concerns about consumer protection and underage participation. New York alleges that Kalshi allows users as young as 18 to bet, violating the state’s minimum age requirement of 21 for mobile sports betting. The state’s Gaming Commission previously ordered Kalshi to halt its operations in 2023, prompting the company to file a federal lawsuit against the commission. That case remains pending, while New York’s latest legal move seeks to block Kalshi’s activities entirely.

The lawsuit comes amid a wave of similar actions by states targeting prediction markets. In April, New York sued Coinbase and Gemini, two cryptocurrency exchanges, over similar allegations. Meanwhile, federal judges have repeatedly blocked state efforts to ban or regulate the industry, including a temporary halt to Minnesota’s prediction market ban and Arizona’s enforcement actions. These rulings have created a patchwork of legal challenges, with no clear resolution in sight.

Kalshi’s legal team has signaled it will fight the latest lawsuit, citing the precedent of federal preemption. However, the case could set a critical test for state authority over emerging financial technologies. For now, the dispute underscores the tension between state regulators, who view prediction markets as a threat to public welfare, and industry advocates, who frame them as innovative financial tools. As the legal battle unfolds, the outcome could shape the future of a sector that has grown rapidly despite regulatory uncertainty.