Kalshi Faces New York Lawsuit Seeking Shutdown, Restitution and Penalties

NEW YORK – Attorney General Letitia James sued Kalshi on Friday, alleging its prediction markets amount to illegal gambling under state law. The case could force the exchange to stop serving New Yorkers and expose it to restitution, forfeiture and penalties tied to its alleged gains.

The petition was filed in New York Supreme Court in Manhattan and alleges that Kalshi operates without a license from the New York State Gaming Commission. Kalshi disputes the state’s position, arguing that it operates a federally regulated exchange under the Commodity Futures Trading Commission’s jurisdiction.

New York Seeks an Injunction and Financial Penalties

In the verified petition against Kalshi, James alleges that users wager on uncertain events outside their control, including sports, elections and entertainment outcomes. The filing cites markets involving the Super Bowl and the reality television program “Big Brother” as examples of contracts the state considers gambling.

The attorney general is asking the court to permanently stop Kalshi from operating an unlicensed gambling business in New York. The requested remedies also include an accounting of customer transactions, restitution, the forfeiture of alleged illegal gains and penalties equal to three times those gains.

New York also objects to Kalshi making its platform available to users between 18 and 20 years old. State law sets 21 as the minimum age for mobile sports betting, and officials argue that allowing younger users to trade event contracts bypasses safeguards applied to licensed operators.

“New York’s gambling laws protect children from underage betting and help combat gambling addiction”, James said. “No matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple.”

Kalshi and CFTC Challenge State Authority

Kalshi rejected the allegations and maintained that federal commodities law prevents individual states from shutting down its exchange. “States can’t just shut down a federally licensed exchange”, the New York-based company said in a statement supplied to Reuters.

The dispute centers on whether Kalshi’s event contracts are financial derivatives regulated exclusively by the CFTC or gambling products that must comply with state licensing laws. The CFTC has challenged enforcement efforts in several states and sued New York in April over what the federal regulator characterizes as interference with its authority.

Reuters reported that the CFTC filed an emergency motion in Manhattan federal court less than an hour before New York announced its lawsuit. The commission asked the court to stop the state’s enforcement activity, arguing that the action could irreparably harm the agency and the markets it regulates.

New York Court Decisions Cleared the Way

The lawsuit follows Kalshi’s unsuccessful attempts to prevent New York from applying its gambling laws while the jurisdictional dispute continues. U.S. District Judge Analisa Torres denied Kalshi’s request for a preliminary injunction in July, finding that the state’s regulatory interests outweighed the company’s claimed harm.

A federal appeals court in Manhattan subsequently rejected Kalshi’s emergency request for protection during its appeal, according to Reuters. That decision left the attorney general free to begin the state enforcement proceeding while Kalshi continues challenging the lower-court ruling.

The New York action follows court orders restricting some Kalshi offerings in Massachusetts, Michigan, Nevada and Washington. The outcomes of the New York state case, Kalshi’s federal appeal and the CFTC’s separate challenge will determine whether the platform must withdraw or modify its contracts for residents while the broader jurisdictional fight continues.

RELATED TOPICS: Regulation