Additional Coverage:
New York State Takes Legal Action Against Prediction Market Platform Kalshi
New York officials have filed a lawsuit against Kalshi, a prediction market platform, accusing it of operating an “illegal, unlicensed gambling operation.” The state seeks to halt Kalshi’s activities within its borders and demands the forfeiture of the company’s profits.
This move places New York among several states that have initiated legal challenges against Kalshi and similar companies amid a broader dispute over regulatory authority between state governments and the federal administration. Kalshi and its counterparts maintain that they are regulated federally and thus outside the jurisdiction of state authorities.
Elisabeth Diana, a spokesperson for Kalshi based in New York, criticized the state’s approach, calling it “political theater” and emphasizing that a federally licensed exchange cannot simply be shut down by state officials. She added that such actions could push New Yorkers to seek services offshore, potentially harming local consumers.
The lawsuit was announced by Governor Kathy Hochul and Attorney General Letitia James, both Democrats, and filed in Manhattan’s state Supreme Court. Attorney General James underscored the state’s commitment to protecting residents from underage betting and gambling addiction, stating that prediction markets like Kalshi are, in essence, gambling platforms operating illegally in New York.
The state is seeking a court order for Kalshi to forfeit any illegal earnings, provide restitution to affected consumers, and pay fines amounting to three times its gains. This legal action follows weeks of negotiations between Kalshi and New York officials addressing tax and consumer protection concerns.
New York has previously taken similar legal steps, including a recent lawsuit against prediction market operators Coinbase and Gemini on comparable grounds. State officials argue that prediction markets fit the legal definition of gambling because they involve uncertain outcomes beyond bettors’ control or depend on chance.
According to the complaint, Kalshi has not obtained the necessary license from the New York Gaming Commission and has avoided tax obligations required of licensed casinos and mobile sports betting platforms. The lawsuit also highlights that Kalshi permits users aged 18 to 20, whereas New York law mandates a minimum age of 21 for mobile sports betting.
Prediction market companies contend that their operations differ fundamentally from traditional gambling because users trade against one another in a manner akin to stock markets. They emphasize that prices are determined by trading activity, and the platforms earn revenue solely through fees on these trades.
Moreover, these companies assert that the U.S. Commodity Futures Trading Commission (CFTC) holds exclusive regulatory authority over prediction market transactions under federal law. In February, the CFTC chair, appointed during the Trump administration, warned against state attempts to regulate or ban these markets, emphasizing the agency’s exclusive jurisdiction.
States, however, argue that most activity on prediction market platforms involves sports betting-a sector they are authorized to regulate-distinguishing it from the commodities and futures contracts overseen by the CFTC.
The regulatory conflict escalated recently when a federal judge issued a temporary injunction against Minnesota’s groundbreaking law banning prediction markets just days before it was to take effect. This ruling represents a setback for states seeking to curtail or regulate these platforms.
As the legal battles multiply, states continue to rely on their gambling laws to challenge prediction market operators like Kalshi and Polymarket. Meanwhile, in April, the federal government initiated lawsuits against Connecticut, Arizona, and Illinois to contest their regulatory efforts, highlighting the ongoing tension between state and federal authorities over this emerging industry.