New York Sues Kalshi for $36 Billion, Alleging Illegal Gambling Operations

New York has filed a lawsuit against prediction market platform Kalshi, accusing the company of operating an illegal gambling business within the state without proper licensing. Attorney General Letitia James filed the complaint on Friday, seeking to bar Kalshi from offering event contracts to New York residents and demanding at least $36 billion in compensatory damages.

The lawsuit alleges that Kalshi allows users to wager on sports, elections, cultural events, and other outcomes without holding a state gaming license. According to the complaint, Kalshi's event contracts satisfy New York's legal definition of gambling, and the platform has been operating without authorization from the New York State Gaming Commission.

Kalshi operates as a federally designated contract market regulated by the Commodity Futures Trading Commission, allowing users to trade binary option contracts tied to real-world event outcomes. The company has argued that this federal designation places it outside the scope of state gambling law, a position now being directly tested in multiple jurisdictions.

Allegations of Underage Access and Financial Harm

Beyond the licensing dispute, the filing claims that Kalshi exposed state residents to financial risk and that some users may have been younger than New York's legal gambling age of 21. The state has also filed a motion for a temporary restraining order to prevent Kalshi from offering the disputed contracts while the litigation proceeds.

Attorney General James is seeking full restitution to affected users, the return of all revenue tied to the contracts, and civil penalties equal to three times the company's gains. Additionally, the lawsuit demands $100,000 in penalties for each individual offering. Court documents estimate compensatory damages at a minimum of $36 billion, though that figure could shift once Kalshi provides a full accounting of its operations and revenue.

The official announcement is available on the New York Attorney General's website.

Federal vs. State Regulatory Conflict

The legal battle underscores a broader jurisdictional clash between federal and state regulators. On Thursday, the Commodity Futures Trading Commission (CFTC) filed its own motion asking a court to prevent New York from pursuing civil or criminal action against registered prediction market platforms. The CFTC contends that federal law grants it authority over event contracts, while New York maintains that its gambling laws remain applicable when such platforms offer sports betting and similar contracts to its residents.

The dispute reflects a long-standing tension in U.S. financial regulation between the Commodity Exchange Act, which governs derivatives and designated contract markets at the federal level, and state consumer protection and gambling statutes that have traditionally regulated wagering within their borders. The outcome of the New York case, alongside parallel litigation in other states, could determine the extent to which federal derivatives law preempts state gambling enforcement for prediction market platforms.

Kalshi has encountered similar legal challenges in other states. Courts in Michigan and Washington have blocked the platform from offering sports-related contracts while those cases remain ongoing. Minnesota, however, took a contrasting approach — a judge there permitted both Kalshi and Polymarket to continue operating while a legal challenge to the state's prediction market ban works its way through the courts.

Kalshi's Market Position

Despite the regulatory pressure, Kalshi continues to operate as the largest prediction market platform by trading volume. The platform recorded $33 billion in monthly volume in June. By comparison, Polymarket and its U.S. counterpart posted a combined $13.95 billion during the same period. Prediction markets more broadly saw a surge in retail participation during the 2024 U.S. election cycle, driving growth for both Kalshi and its competitors and intensifying scrutiny from state regulators unaccustomed to the scale of activity on these platforms.