New York moves to shut Kalshi down, seeks at least $36 billion in penalties New York Attorney General Letitia James has sued CFTC-registered prediction market operator Kalshi, asking a court to bar the company from running event-based markets in the state and to force restitution plus hefty civil penalties. Court filings estimate compensatory damages could reach at least $36 billion pending a full accounting of Kalshi’s New York business. What New York alleges - The AG’s complaint claims Kalshi offered event contracts tied to sports, elections and cultural events without a license from the New York State Gaming Commission, and that those contracts meet New York’s legal definition of gambling rather than federally regulated derivatives. - New York also accuses Kalshi of allowing residents under the state’s legal gambling age of 21 to trade on its platform, of exposing consumers to unregulated financial risk, and of avoiding gambling-related taxes. - The state’s motion for a temporary restraining order seeks to immediately halt the relevant event contracts in New York and demands restitution for users, disgorgement of revenue, treble damages and an additional $100,000 penalty for each offering. State leaders weigh in Governor Kathy Hochul said Kalshi “has chosen to ignore New York’s gaming laws, which exist to protect consumers, prevent problematic gambling, deliver funding for critical public services, and ensure that every company plays by the same rules.” AG James added, “No matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple.” Ongoing federal-state clash The lawsuit is the latest skirmish in a broader, unsettled legal fight over whether prediction markets are governed exclusively by the Commodity Exchange Act (CEA) and the Commodity Futures Trading Commission (CFTC) or whether states can regulate them as gambling. - U.S. District Judge Analisa Torres recently denied Kalshi’s requests for emergency relief while the company appeals to the Second Circuit. In July Torres concluded that the CEA was unlikely to preempt New York’s gambling laws as applied to Kalshi’s sports-event contracts, a ruling Kalshi is appealing. - The CFTC has interceded separately, filing its own motion for a temporary restraining order to block New York from pursuing enforcement against CFTC-registered platforms. The agency argues Congress gave it exclusive authority over qualifying event contracts listed on designated contract markets. - The CFTC has also floated a proposed regulatory framework that would subject event contracts to a contract-by-contract review for categories that raise special concerns (gaming, unlawful conduct, war, terrorism, assassination); the proposal’s public comment period closed July 27, and a final rule has not been issued. A patchwork of court decisions around the U.S. State and federal courts are issuing conflicting rulings, leaving prediction-market operators in legal limbo: - A Minnesota federal judge temporarily blocked the state from enforcing a new prediction market ban against CFTC-registered exchanges (including Kalshi), finding the plaintiffs were likely to succeed in arguing for CFTC preemption — but stressing that decision was preliminary and that not all contracts necessarily qualify for federal protection. - Michigan and Washington courts recently granted temporary orders barring Kalshi from offering sports-related event contracts, finding potential violations of state gambling laws. - The Third Circuit earlier held New Jersey could not regulate Kalshi’s sports-event contracts because they fell under CFTC jurisdiction, while New York federal courts have taken a narrower view of federal preemption. What’s next Kalshi’s appeal in the Second Circuit, the CFTC’s pending rulemaking, and a growing number of state lawsuits will together shape whether states can regulate or block federally registered prediction markets. For crypto and DeFi platforms building event-based or betting-like products, the disputes underscore a high-stakes legal environment: outcomes could redefine whether such offerings are treated as federally regulated derivatives or as state-regulated gambling.
New York Sues Kalshi for $36B, Claims Prediction Markets Violate State Gambling Laws
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Summary
New York sues Kalshi under CFT laws, demanding $36B in penalties. The state claims the prediction market violates gambling rules, allows underage trading, and dodges taxes. Kalshi is registered with the CFTC as a derivatives operator, but New York insists its contracts fall under state gambling statutes. The case adds another layer to the ongoing debate over liquidity and crypto markets regulation, as federal and state courts issue conflicting rulings.
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