The lawsuit alleges that Kalshi acted as an unlicensed gambling operator, stressing that prediction markets meet the legal definition of gambling as the outcomes of event contracts “are uncertain and outside the control of the bettor or hinge on a game of chance.”
Key Takeaways
- New York sued Kalshi for running an unlicensed gambling operation disguised as a prediction market.
- The state alleges Kalshi bypasses taxes and illegally permits betting by users under 21 years old.
- New York seeks a ban on Kalshi, customer restitution, and fines, escalating a regulatory turf war.
New York Alleges Kalshi Violated State Laws Operating an Unlicensed Gambling Business
The State of New York has initiated legal action against Kalshi, one of the largest prediction-market platforms in the U.S.
The lawsuit, introduced on Friday, stressed that Kalshi disregarded state gambling laws and provided access to a gambling platform for New Yorkers, characterizing Kalshi, which has been promoted as an event market platform, as an unlicensed gambling business.
New York argues that Kalshi’s activities are consistent with those of a gambling platform, as the outcomes of the events on which its users bet “are uncertain and outside the control of the bettor or hinge on a game of chance.”
Even so, Kalshi failed to obtain a gambling license from the New York State Commission and is not paying taxes like similar licensed platforms must. In addition, New York claims that Kalshi offered gambling access to users between 18 and 20 years old, in clear violation of state law restrictions that require citizens to be at least 21 years old to participate in mobile sports betting.
New York Governor Kathy Hochul highlighted that, unrelated to its own consideration, Kalshi chose to ignore state gambling protection laws. “This choice has consequences, and working closely with Attorney General James, New York is taking action to stop this illegal behavior and bring Kalshi into compliance, because no company is above the law,” she declared.
Letitia James, the Attorney General of the State of New York, remarked on the illegal character of Kalshi’s business in New York.
“No matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple. By ignoring our laws, Kalshi is running an illegal operation and harming New Yorkers in the process. We are taking them to court to uphold our laws and protect New Yorkers,” she assessed.
The lawsuit seeks to prevent Kalshi from offering its services in New York, full restitution of the funds paid to customers who engaged with the platform, and payment of damages for the platform’s activities in the state. In addition, New York seeks a penalty payment of $100,000 for each unauthorized offer or attempt to offer sports wagering in New York, and three times the amount of its gain from its violations.
New York’s actions come as 44 state attorneys general claim that the Commodity Futures Trading Commission (CFTC) has no authority over sports betting on these platforms.
Nonetheless, the CFTC has claimed it has “exclusive jurisdiction” over these platforms, granted by Congress. “To any state that seeks to nullify federal law and seize authority over these markets, I say again: we will see you in court,” Chairman Michael S. Selig stated in April.