New York sues Kalshi prediction market over 'illegal gambling'

New York has filed a lawsuit against Kalshi, the prediction market platform, alleging it operates an illegal, unlicensed gambling business. The suit, announced Friday by Governor Kathy Hochul and Attorney General Letitia James, was filed in state supreme court in Manhattan and seeks to stop Kalshi from operating, force it to surrender profits, and compensate New Yorkers harmed by its services.

State calls Kalshi a gambling operation

The complaint argues that Kalshi's betting on uncertain outcomes meets New York's legal definition of gambling because users wager on events whose results are outside their control. It also claims Kalshi failed to obtain a license from the state gaming commission and skipped tax obligations that licensed casinos and mobile sports betting platforms must pay. Additionally, New York law requires mobile sports bettors to be at least 21, while Kalshi permits users aged 18 to 20.

James said in a statement that prediction markets like Kalshi are "gambling platforms, plain and simple," regardless of what they call themselves. Her office is requesting a court order for Kalshi to forfeit all illegal gains, pay restitution to consumers, and pay fines equal to three times the company's profits.

Kalshi pushes back, citing federal oversight

Kalshi, which is based in New York, pushed back against the lawsuit. Elisabeth Diana, a spokesperson for the company, called the legal action "political theater" from state leaders and argued that a state cannot shut down a federally licensed exchange. She added that the move would drive New Yorkers to offshore platforms and noted that "New Yorkers love our product."

The company and other prediction market platforms contend they are more akin to stock exchanges: users trade contracts with each other, prices reflect market sentiment, and the platform earns only a fee. They say federal law gives the Commodity Futures Trading Commission exclusive jurisdiction over these transactions, a position echoed by the Trump-appointed CFTC chair, who declared in February that the agency would "no longer sit idly by" while states undermine its authority.

Growing state-federal conflict

New York is not alone in its crackdown. Other states have filed similar lawsuits against platforms like Coinbase and Gemini over illegal gambling allegations. Meanwhile, on Monday, a federal judge temporarily blocked Minnesota's first-in-the-nation ban on prediction markets, just days before it was to take effect, creating a fast-moving legal landscape.

States argue that most activity on these platforms is sports betting, which they have long regulated. That, they say, is fundamentally different from the commodity futures contracts the CFTC oversees. The dispute is likely to end up in higher courts as both sides claim jurisdictional authority.

Uncertain future for prediction markets

The New York lawsuit adds to mounting pressure on Kalshi as it fights for survival in its home state. If the state succeeds, it could set a precedent for other jurisdictions to crack down on prediction markets. Conversely, if Kalshi prevails, it could further cement federal oversight and weaken state consumer protections. Either way, the outcome will shape how Americans engage with these platforms and whether they remain accessible.