Hassan Maishera
TL;DR
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New York Attorney General Letitia James has sued Kalshi, alleging it operates an unlicensed gambling platform through its prediction markets.
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The state is seeking to block Kalshi's operations in New York and pursue at least $36 billion in damages, restitution, and civil penalties.
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The lawsuit comes despite the CFTC's efforts to preserve federal oversight of prediction markets and prevent state enforcement actions.
New York has filed a sweeping lawsuit against prediction market platform Kalshi, accusing the company of operating an unlicensed gambling business in the state and seeking at least $36 billion in damages, restitution, and penalties.
Filed Friday by New York Attorney General Letitia James, the lawsuit asks the court to block Kalshi from operating in the state while requiring the company to compensate users and surrender profits allegedly generated through unlawful offerings.
State Says Kalshi Operates Illegal Gambling Platform
According to the attorney general's office, Kalshi allows New York residents to wager on events involving sports, elections, and popular culture without obtaining the licenses required by the New York State Gaming Commission.
The state argues that the platform's event contracts meet New York's legal definition of gambling and alleges the company exposed consumers—including individuals below the state's legal gambling age of 21—to significant financial and personal risks.
The lawsuit also accuses Kalshi of failing to pay taxes associated with its operations in New York.
Governor Kathy Hochul said the state's gambling laws exist to protect consumers, combat gambling addiction, generate revenue for public services, and ensure companies operate under the same regulatory framework.
Attorney General Letitia James said prediction markets function as gambling platforms regardless of how they are marketed and argued that they must comply with state gaming laws.
Alongside the lawsuit, New York filed a motion requesting a temporary restraining order to immediately halt Kalshi's event contracts within the state.
The state is also asking the court to:
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Order full restitution for affected users.
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Require Kalshi to disgorge all profits earned through the challenged offerings.
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Impose civil penalties equal to three times the company's gains.
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Levy an additional $100,000 penalty for each offering.
According to court filings, the requested compensatory damages could total at least $36 billion, although the final amount could increase following a complete accounting of Kalshi's financial records.
CFTC Seeks to Block State Enforcement
The lawsuit arrives just one day after the Commodity Futures Trading Commission (CFTC) filed its own motion for a temporary restraining order aimed at preventing New York from pursuing civil or criminal enforcement actions against Kalshi and other federally regulated prediction market platforms.
The CFTC has argued that event contract markets fall under its exclusive regulatory authority and has launched legal actions against several state regulators seeking to restrict prediction markets.
The growing dispute highlights an escalating jurisdictional battle between federal regulators and individual states over who has the authority to regulate event-based contracts.
Kalshi has faced increasing scrutiny from state regulators over its sports-related prediction markets.
Earlier this week, a federal judge in New York declined to prevent the state from enforcing its gambling laws against the company.
Other states have also moved against the platform:
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A Michigan court issued a temporary restraining order last month blocking Kalshi from offering sports-related event contracts.
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A Washington court granted a similar order last week, concluding the contracts likely violate state gambling laws.
Minnesota has emerged as a notable exception. Earlier this week, a state judge temporarily blocked enforcement of Minnesota's new law banning prediction markets, allowing both Kalshi and Polymarket to continue operating while litigation proceeds.
Sports and gaming attorney Daniel Wallach said New York's case stands apart because of the broad civil remedies available to the attorney general.
According to Wallach, the state could potentially seek nationwide disgorgement of Kalshi's allegedly unlawful profits, allowing it to recover revenue generated from customers outside New York in addition to state residents.
He added that, considering Kalshi's nationwide customer base and the possibility of treble damages, the reported $36 billion figure could ultimately prove conservative.
Kalshi Remains the Largest Prediction Market
Despite mounting legal pressure, Kalshi continues to dominate the prediction market industry by trading volume.
According to market data, Kalshi recorded $33 billion in monthly trading volume during June, comfortably ahead of rival Polymarket, whose global and U.S. platforms generated a combined $13.95 billion over the same period.
The latest lawsuit represents one of the most significant legal threats Kalshi has faced and could become a landmark case in determining how prediction markets are regulated across the United States.
