New York sues Kalshi, escalating fight over prediction markets

New York Attorney General Letitia James and Gov. Kathy Hochul sued Kalshi on July 31, accusing the prediction-market platform of running an illegal, unlicensed gambling business and drawing a new line in the fight over who controls event contracts. The complaint seeks to halt Kalshi’s operations in New York, force restitution to consumers, require the company to forfeit profits and impose fines equal to three times the amount at issue.

The size of the case has put it in a different league from a routine state enforcement action. Multiple outlets described the damages sought as a $36 billion case, underscoring how aggressively New York is pressing the argument that Kalshi is operating as a sportsbook, not a financial exchange.

Kalshi has rejected that framing. The company says it is a federally regulated prediction market overseen by the Commodity Futures Trading Commission as a Designated Contract Market, and not a traditional gambling operator. That position received a major boost on April 6, when the U.S. Court of Appeals for the Third Circuit ruled in KalshiEX LLC v. New Jersey gaming regulators that New Jersey could not regulate Kalshi’s sports-related event contracts.

New York moved despite that ruling, and its stance hardened through the spring and summer. On April 24, James joined 37 other attorneys general in an amicus brief supporting Massachusetts’ lawsuit against Kalshi over sports betting. On July 8, James and Hochul said Kalshi had tried to get out of following New York’s laws but lost in court after the company’s dispute with the New York State Gaming Commission.

The broader pressure on Kalshi has grown well beyond one state. Material from the National Conference of State Legislatures said that as of early 2026, more than 20 lawsuits and cease-and-desist actions involving prediction markets were pending nationwide. A July 28 CNBC report said 44 states were aligned in arguing that the CFTC has no authority over sports prediction markets.

Federal regulators have been pulled in as well. Reuters reported on June 10 that the CFTC was mapping out new rules for prediction markets, a sign that the agency is trying to define the line between derivatives and gambling before courts do it for them. Kalshi’s case has become the test vehicle for that decision, with sports, elections and other event contracts hanging on whether regulators treat them as financial products or betting slips.