Kalshi Faces Lawsuit as New York Calls Prediction Markets Illegal

New York’s attorney general filed a lawsuit against Kalshi on Friday, alleging the platform operates illegal gambling markets without proper state authorization. The legal action claims the company failed to obtain a required New York State Gaming Commission license for its operations. Kalshi prediction markets have gained significant traction following the 2024 U.S. presidential election, where they outperformed traditional pollsters in forecasting outcomes. The lawsuit argues that the platform offers wagering on events beyond users’ control, which constitutes gambling under state law. At least four states, including Massachusetts, Michigan, Nevada, and Washington, have already secured court orders restricting the company’s activities.

New York Attorney General Files Lawsuit Against Kalshi Prediction Markets

Governor Kathy Hochul and Attorney General Letitia James announced the legal action through a joint statement, following an investigation by the Office of the Attorney General that determined Kalshi prediction markets constitute an illegal, unlicensed gambling operation. The investigation revealed that the platform’s event contracts meet the legal definition of gambling because outcomes remain uncertain and outside bettor control or hinge on chance.

The lawsuit targets Kalshi’s failure to obtain a Gaming Commission license, allowing the company to sidestep tax obligations that licensed casinos and mobile sports betting platforms pay. This tax revenue funds public schools, sports programs for underserved youth, and problem gambling education and treatment.

Specifically, the complaint highlights age-related violations. Kalshi prediction markets remain available to users between 18-20 years old, despite New York law requiring participants to be at least 21 for mobile sports betting. Recent research demonstrates that gambling among young people associates with psychological distress, financial difficulties, and increased risk of gambling-related harms in adulthood.

The legal filing seeks a court order halting operations, requiring the company to pay fines, forfeit all illegal gains, and provide restitution to users. In April 2026, James filed similar lawsuits against Coinbase and Gemini for running illegal gambling platforms. The attorney general likewise joined a bipartisan coalition of 37 other attorneys general supporting Massachusetts’ lawsuit against the platform. As of May, Kalshi was valued at $22 billion.

How Federal and State Regulators Battle Over Prediction Market Authority

The Commodity Futures Trading Commission maintains it holds exclusive regulatory authority over prediction markets, classifying them as derivatives under the Commodity Exchange Act rather than gambling. CFTC Chairman Michael Selig filed an amicus brief asserting this position and defending the agency’s sole jurisdiction.

During March 2026, the CFTC issued an Advance Notice of Proposed Rulemaking alongside a staff advisory addressing event contracts. The ANPRM established a 45-day public comment period ending April 30, 2026, allowing stakeholders to submit feedback as the agency considers new regulatory approaches.

Multiple states reject the federal preemption argument. New York issued one of the earliest cease-and-desist letters in October 2025. Enforcement efforts expanded to Connecticut, Wisconsin, Rhode Island, and Michigan, with the dispute now spanning nine states. The CFTC responded by filing lawsuits against Arizona, Connecticut, and Illinois, later adding Wisconsin to its legal challenges.

States argue Kalshi prediction markets and similar platforms operate illegal sports betting operations through event contracts driving platform volume. The CFTC counters that its authority to regulate swaps places all event contracts under federal purview regardless of content.

The jurisdictional battle crosses partisan lines. Eleven states with ongoing proceedings have Democratic attorneys general, while five have Republican ones. Legal experts suggest the dispute carries potential for a circuit split, indicating high likelihood of Supreme Court review.

Courts Deny Kalshi’s Attempts to Block State Enforcement

A federal judge denied Kalshi’s bid to block New York from enforcing its gambling laws against the prediction markets platform. The U.S. 2nd Circuit subsequently rejected Kalshi’s request for temporary administrative relief pending review by a three-judge panel, referring the full motion to the panel for consideration.

In contrast, the Third Circuit delivered a favorable ruling for Kalshi in its New Jersey dispute. New Jersey’s Division of Gaming Enforcement had sent a cease-and-desist letter in March 2025, threatening criminal penalties up to $100,000 for violations. U.S. District Judge Edward S. Kiel granted a preliminary injunction in April 2025, temporarily blocking New Jersey from enforcing restrictions on Kalshi’s sports-related event contracts. The Third Circuit affirmed this decision in a 2-1 ruling, finding that the Commodity Exchange Act preempts New Jersey’s gambling laws as applied to sports-related event contracts on designated contract markets.

However, Maryland broke this pattern in August 2025. A federal court denied Kalshi’s injunctive relief request, holding that Congress did not clearly intend to displace state gambling authority. Similarly, a Massachusetts state court issued a preliminary injunction in January 2026 barring Kalshi from allowing in-state sports betting without proper licensing. Tennessee granted a temporary restraining order blocking state enforcement in January 2026.