New York Sues Kalshi for $36B, Alleges Unlicensed Gambling

New York has escalated its legal battle with prediction-market platform Kalshi, accusing the company of operating an unlicensed gambling business in the state. The lawsuit adds to a growing regulatory conflict over whether event-based contracts should be treated as financial products or gambling activities.

On Friday, New York Attorney General Letitia James filed a lawsuit seeking to prevent Kalshi from offering its prediction markets in the state. The action also asks the court to impose financial penalties and require the platform to compensate affected users.

According to the New York Attorney General’s Office, Kalshi allows users to place wagers on sports, cultural events and elections without obtaining authorization from the New York State Gaming Commission.

State officials argue that these contracts fall within New York’s legal definition of gambling. They also claim Kalshi has exposed New York residents, including people below the state’s legal gambling age of 21, to significant financial and personal risks.

In addition, the lawsuit alleges that Kalshi failed to meet its tax obligations associated with the activities in question.

Alongside the lawsuit, New York submitted a motion requesting a temporary restraining order that would immediately prevent Kalshi from offering the disputed event contracts in the state.

The state is also asking the court to require Kalshi to return funds to users, surrender proceeds generated from the contracts and pay penalties equal to three times its alleged gains. The request further seeks $100,000 in penalties for each individual offering.

Court documents indicate that the potential compensatory damages could reach at least $36 billion, although the final figure would depend on a complete accounting of the platform’s activities.

New York Governor Kathy Hochul accused Kalshi of disregarding state gaming regulations designed to protect consumers, curb problematic gambling, generate funding for public services and ensure equal treatment among market operators.

Attorney General Letitia James similarly argued that prediction markets remain gambling platforms regardless of the terminology used to describe them, emphasizing the state’s concerns over underage betting and gambling addiction.

The New York lawsuit comes as the Commodity Futures Trading Commission (CFTC) is pursuing a parallel legal strategy.

On Thursday, the federal regulator filed its own motion seeking to prevent New York from taking civil or criminal enforcement action against Kalshi and other prediction-market platforms registered with the CFTC.

The move reflects a broader dispute over regulatory authority. While state officials argue that sports-related event contracts fall under state gambling laws, the CFTC has maintained that federally regulated prediction markets fall within its exclusive jurisdiction.

New York is not the only state challenging Kalshi’s sports contracts. The platform has faced a series of legal setbacks as state regulators increasingly target its event-based offerings.

Earlier this week, a federal judge in New York again declined to prevent the state from enforcing its gambling laws against Kalshi.

Michigan also secured a temporary restraining order last month that barred the company from offering sports-related event contracts. Meanwhile, a Washington court granted a similar request last week, finding that Kalshi’s activities could constitute illegal gambling under state law.

Minnesota, however, has taken a different approach. A judge there recently prevented the state from enforcing a new law prohibiting prediction markets, allowing both Kalshi and Polymarket to continue operating while the broader legal dispute moves forward.

Sports and gaming attorney Daniel Wallach highlighted a major distinction between New York’s case and similar state-level actions: the wide range of civil remedies available to the state attorney general.

According to Wallach, New York could potentially seek disgorgement extending beyond transactions conducted within the state, potentially allowing officials to recover alleged unlawful profits generated from customers elsewhere.

He also suggested that the $36 billion figure cited in the case may ultimately prove conservative once Kalshi’s nationwide customer base and potential treble penalties are taken into account. This is why, he argued, the attorney general’s office is seeking a comprehensive accounting of the company’s activities.

Despite mounting regulatory challenges, Kalshi remains the world’s largest prediction-market platform by trading volume, ahead of rival Polymarket.

Data from The Block’s dashboard shows that Kalshi recorded approximately $33 billion in monthly volume in June. By comparison, Polymarket and its U.S. platform generated a combined $13.95 billion during the same month.

The New York lawsuit represents more than another dispute over Kalshi’s sports contracts. At its core, the case could help determine whether prediction markets should operate primarily under federal financial-market rules or remain subject to state gambling laws when they offer contracts tied to sports and other events.

The growing split between the CFTC and state regulators also exposes a regulatory gap that becomes harder to ignore as prediction markets expand. In my view, Kalshi’s growing trading volumes make this conflict increasingly consequential: if states succeed in treating event contracts as gambling, the platform’s business model could face significant geographic restrictions; if federal jurisdiction prevails, states may have far less power to regulate an increasingly mainstream form of event-based trading.