A federal court has dismissed Kalshi's plea to halt New York's enforcement of its gambling regulations against the prediction market operator. Following this decision, Kalshi has escalated the matter to a higher court.
On Tuesday, Judge Analisa Torres of the Southern District of New York rejected Kalshi's request for a preliminary injunction in the case of KalshiEX LLC v. Williamson. The company promptly filed an appeal, transferring the case to the U.S. Court of Appeals for the Second Circuit.
The central question revolves around whether Kalshi's contracts related to sports events are classified as federally regulated derivatives under the Commodity Exchange Act (CEA) or if they fall under state gambling laws. The New York State Gaming Commission asserts that these contracts breach state regulations, while Kalshi argues that its designation as a CFTC-regulated exchange supersedes local laws.
Judge Torres ruled in favor of the state, stating, "The Court finds that New York gambling laws as applied to Kalshi's sports-event contracts are not preempted by the CEA, and Kalshi has not demonstrated a significant likelihood of success on the merits."
She emphasized that the CEA allows states to regulate certain aspects of swaps and financial products traded on designated contract markets.
"Given that the authority to regulate gambling is a traditional police power exercised by New York, the Court also declines to interpret the CEA's grant of exclusive jurisdiction as leaving 'no room for supplementary state legislation,'" Torres noted.
Additionally, she mentioned that Kalshi has the option to apply for a license in New York. "While adhering to New York's gambling laws adds an extra regulatory burden on Kalshi, it does not directly contradict federal law. Thus, Kalshi's efforts to evade this requirement are ineffective," the ruling stated.
The judge's opinion acknowledged that courts in other jurisdictions have reached varying conclusions regarding similar requests from Kalshi, with some granting injunctions against state enforcement while others have denied them.
Sports and gaming law expert Daniel Wallach characterized the ruling as significant for Kalshi's ongoing legal challenges. On social media platform X, he remarked: "A major setback for Kalshi in the financial hub of the US, likely impacting other cases." He later indicated that lawsuits in Connecticut and other cases within the Southern District of New York are expected to be influenced by this decision.
New York Attorney General Letitia James has contested Kalshi's argument for preemption and is anticipated to initiate a civil enforcement action against the company in state court, seeking restitution, penalties, and injunctive relief.
Kalshi faces regulatory hurdles in several jurisdictions regarding its sports-related contracts. Recently, a judge in Michigan issued a temporary restraining order preventing Kalshi from offering sports-event contracts in that state.
Moreover, Kalshi has initiated legal action against Illinois over a new law imposing a 0.2% fee on digital asset transactions or services rendered to state customers, claiming the law conflicts with CFTC oversight.
A federal judge in Minnesota has sided with state officials who argue that prediction market platforms have exceeded the scope intended by Congress when it established the CFTC's regulatory framework in 1974.
In Kentucky, Attorney General Russell Coleman has filed a lawsuit against both Kalshi and Polymarket, alleging that these platforms are providing illegal sports betting, which should be governed by state gambling laws rather than federal financial regulations.
Wisconsin has also taken legal action against Kalshi, alongside Robinhood, Coinbase, Polymarket, and Crypto.com, alleging that these companies have facilitated illegal sports betting through their event-contract offerings. Nevada regulators have pursued similar actions against Kalshi, Coinbase, and Polymarket.
Conversely, the CFTC has adopted a different stance at the federal level. In April, the agency filed a lawsuit against New York, seeking a declaratory judgment affirming that federal law grants it exclusive jurisdiction over these matters.