New York Sues Prediction Market Kalshi Over Alleged Illegal Gambling

New York has sued prediction market platform Kalshi, alleging it operates an illegal, unlicensed gambling business by offering event contracts on sports, elections and other outcomes.

The lawsuit seeks to stop Kalshi’s alleged illegal gambling operation in the state, require the company to forfeit illegal gains, pay restitution to users and pay civil penalties equal to three times those gains.

“No matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple,” Attorney General Letitia James said in Friday’s statement. “We are taking them to court to uphold our laws and protect New Yorkers.”

The lawsuit comes after the New York State Gaming Commission issued Kalshi a cease-and-desist order in October 2025, prompting the company to sue the regulator in federal court.

A judge denied Kalshi’s request for a preliminary injunction in July, and an appeals court later rejected its bid to block enforcement while the appeal proceeds.

“It’s sad to see this type of political theater from the leadership in our own state. States can’t just shut down a federally licensed exchange,” Elisabeth Diana, Kalshi’s head of communications, said in a statement shared with Cointelegraph.

“This would also hurt New Yorkers, who would be driven offshore,” she added.

CFTC defends federal oversight of prediction markets

The lawsuit adds to an escalating jurisdictional dispute over whether event contracts offered by federally regulated prediction markets are subject to state gambling laws.

Just before New York filed its case, the Commodity Futures Trading Commission (CFTC) filed an emergency motion seeking to block New York’s enforcement efforts, arguing that the state’s actions interfere with the agency’s exclusive authority under the Commodity Exchange Act to regulate designated contract markets like Kalshi.

The CFTC has taken similar positions in disputes involving at least nine states, arguing that allowing states to prohibit event contracts listed by federally regulated exchanges would create conflicting state rules and undermine federal commodities regulation.

Prediction markets continue to gain mainstream traction

Prediction markets allow users to buy and sell contracts tied to the outcome of future events, with prices reflecting the market’s estimate of the probability that an event will occur.

Kalshi’s rival, Polymarket, has also faced regulatory scrutiny, with several countries restricting or investigating its operations over gambling and licensing concerns.

Kalshi began expanding into blockchain-based infrastructure in December 2025, launching tokenized prediction markets on Solana and later adding support for multiple blockchain networks.

The broader prediction market sector has also grown alongside major sporting events.

According to analytics firm Chainalysis, blockchain-based prediction markets processed about $20 billion in trading tied to the 2026 FIFA World Cup, with more than 400,000 wallets participating.