New York on Friday asked a Manhattan judge to shut down prediction market operator Kalshi, accusing the platform of running an “illegal, unlicensed gambling operation” and seeking roughly $36 billion in damages and penalties. The case escalates a broader fight over whether states or the federal government should police online markets that let users bet on everything from sports to elections.
The lawsuit, filed by Attorney General Letitia James and announced alongside Gov. Kathy Hochul, argues Kalshi has flouted state gambling laws, allowed underage participation and avoided taxes owed by licensed wagering businesses. Kalshi says it is a federally regulated exchange and that state efforts to stop it will push New Yorkers to offshore sites.
The dispute sits at the intersection of two competing claims: state regulators who say betting-style activity falls under gambling laws, and platforms that maintain they operate like financial markets and therefore fall under federal oversight by the CFTC.
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What New York is asking for
- For Kalshi to be declared an unlawful gambling operation and ordered to cease activities in the state.
- For the company to forfeit alleged illicit gains and pay restitution to harmed consumers.
- Monetary penalties equalling up to three times the company’s gains — the state’s filing estimates about $36 billion in damages and costs.
State officials say the platforms meet the legal tests for gambling because event outcomes are uncertain, beyond the bettor’s control and often amount to wagering on chance. New York also points to age restrictions: prediction markets allow participants aged 18–20, while the state’s mobile sports betting rules require users to be at least 21.
Kalshi, which lets people trade contracts tied to events such as sports results, political outcomes and weather, maintains it functions like a commodities exchange where traders buy and sell contracts and the platform only collects fees. A company spokesperson called attempts to shut it down “political theater,” warning that state intervention would harm consumers by pushing activity offshore.
The confrontation is part of a growing legal web:
- In April New York sued other platforms, including Coinbase-linked offerings and Gemini, on similar illegal-gambling grounds.
- Last October the New York Gaming Commission ordered Kalshi to stop operations in the state; Kalshi responded by suing the commission in federal court — that case is still pending.
- Federal judges recently issued temporary blocks on state actions in Minnesota and Arizona that sought to ban or restrict prediction markets.
- At the federal level, the administration’s appointee at the CFTC has asserted the commission’s exclusive authority and warned states against undermining that jurisdiction; the federal government has also challenged state laws in courts in several states.
Why this matters now
The outcome will shape whether states can use their gambling codes to regulate or shut down prediction markets — a decision with immediate implications for consumer protections, tax revenues and the future availability of these services to U.S. users. If states prevail, platforms might need new licensing, age-verification rules and tax arrangements; if federal regulators are deemed exclusive overseers, states may have limited tools to enforce local consumer- and gambling-protection standards.
For ordinary users, the stakes are practical: access to platforms, the age at which people can participate, and whether consumer restitution will be available if regulators find unlawful conduct. For state governments, the case implicates potential lost tax receipts and the ability to enforce local safeguards against problem gambling.
What to watch next
- How the Manhattan court rules on New York’s request for injunctions and forfeiture.
- Decisions in parallel federal cases testing the CFTC’s claimed authority over prediction markets.
- Whether regulators nationwide coordinate or diverge in enforcement approaches, and whether platforms adjust product offerings, age limits or geoblocking to comply with state laws.
The litigation is likely to produce a cascade of appeals and counterclaims that could take months — or years — to sort out. Meanwhile, users and state officials remain caught between two competing views of what these markets are: gambling that states can regulate, or financial trading subject to federal oversight. The next court rulings will help decide which view prevails and what rules will govern these novel online exchanges.
