The state of New York has initiated legal action against Kalshi, a prediction market operator, aiming to prevent the company from continuing its operations without obtaining a state gambling license. The lawsuit, filed by Attorney General Letitia James, seeks to recover penalties and profits that could amount to a staggering $36 billion.
According to the lawsuit submitted on Friday, Kalshi is accused of running an unlawful gambling platform, allowing users to place bets on various events, including sports and elections. The state is demanding restitution for consumers affected by these activities, the forfeiture of alleged illegal profits, and fines that could reach three times the revenue generated from gambling in New York. Additionally, the attorney general's office is pursuing $100,000 for each alleged attempt to engage with customers within the state, which could escalate the total liability to $36 billion.
In response, Kalshi has attempted to transfer the case to federal court in Manhattan, arguing that it operates as a federally regulated futures exchange. However, New York is likely to contest this proposed change in jurisdiction.
The core issue revolves around whether Kalshi's event contracts are classified as financial products under the oversight of the Commodity Futures Trading Commission (CFTC) or as gambling products subject to state regulations, taxes, and consumer protection laws.
Kalshi's spokesperson, Elisabeth Diana, criticized the lawsuit, describing it as “political theater” and asserting that states cannot arbitrarily shut down a federally licensed exchange.
New York contends that Kalshi's contracts fit the legal definition of gambling, as participants wager money on uncertain outcomes beyond their control. The state claims that Kalshi has sidestepped the licensing and taxation requirements applicable to casinos and mobile sports betting platforms.
The CFTC, under the leadership of Michael Selig, has also taken legal action against states like New York, affirming its federal authority over prediction markets.
Kalshi, which began operations in 2021 and introduced sports trading in 2025, asserts that it can legally provide markets across the country, promoting itself with the slogan “Kalshi: Legal in all 50 states.” Currently, online sports betting is permitted in 39 states.
Investigations by the attorney general revealed that Kalshi allows users aged 18 to 20 to participate, while New York mandates that mobile sports bettors be at least 21 years old.
Attorney General James emphasized the importance of New York's gambling laws in protecting minors from underage betting and addressing gambling addiction. She stated, “Regardless of their branding, prediction markets like Kalshi are fundamentally gambling platforms. By disregarding our laws, Kalshi is operating illegally and causing harm to New Yorkers. We are taking legal action to enforce our laws and safeguard our residents.”
Prior to the lawsuit, Kalshi reportedly engaged in discussions with state officials for several weeks, proposing frameworks for self-exclusion, advertising, and consumer protections. The company also suggested a tax agreement similar to North Carolina's, which imposes a 6% tax on prediction market trades, compared to 23% on traditional gambling revenue. This proposal was estimated to generate around $10 billion over five years.
Governor Hochul remarked, “Kalshi has opted to ignore New York’s gaming regulations, which are designed to protect consumers, mitigate gambling-related issues, provide funding for essential public services, and ensure fair competition among companies. This decision carries consequences, and in close collaboration with Attorney General James, New York is taking measures to halt this illegal conduct and compel Kalshi to comply, as no entity is above the law.”
This lawsuit follows previous actions taken by New York against Coinbase.