The State of New York sued KalshiEX, LLC on Thursday, asking a Manhattan court to shut down the prediction-market operator, order it to surrender all profits earned from New York customers, and impose a penalty equal to three times those profits. The lawsuit escalates a jurisdictional fight that could determine whether the rapidly growing prediction-market industry operates under federal derivatives oversight or state gambling regimes — a question now being litigated across multiple courts and involving several platforms beyond Kalshi.

New York's Case: Prediction Contracts Are Gambling

Governor Kathy Hochul and Attorney General Letitia James announced the action together. The state filed a verified petition in the New York Supreme Court under Executive Law 63(12), arguing that a Kalshi customer risks money on an unpredictable outcome over which they have no control and receives a payout if that outcome occurs — conduct the Attorney General's Office says meets the legal definition of gambling.

"No matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple," James said in the announcement.

The petition alleges that by operating without a license from the New York State Gaming Commission, Kalshi avoided the approximately 51% tax that licensed mobile sportsbooks pay — revenue that funds public schools and problem-gambling programs. The filing also cites Kalshi's own figures: a claimed $22 billion valuation and $178 billion in annualized transaction volume.

Investigators from the Attorney General's Office reportedly wagered from New York accounts to build their case. In April, they purchased four "yes" contracts on a UConn–Michigan basketball game for $1.14, and in July they bought ten more contracts on the winner of the television show Big Brother.

The state further alleges that Kalshi accepted bets on New York college teams, citing a Siena–Duke matchup that is prohibited even for licensed sportsbooks. According to the petition, Kalshi allowed individuals between the ages of 18 and 20 to trade, despite New York requiring bettors to be at least 21 years old. The Attorney General's Office asserted that exposing that age group to online gambling carries long-term psychological and financial risks.

The petition seeks $100,000 for each unauthorized sports-wagering offer under the Racing Law, along with disgorgement and triple damages under Penal Law 80.10. The court has not yet tested any of these claims or found Kalshi liable.

New York Invokes Federal Wire Act Against a CFTC-Registered Exchange

Beyond state gambling charges, New York contends that Kalshi violated the federal Interstate Wire Act, which prohibits using wire communications to transmit bets across state lines.

Since 2020, Kalshi has maintained that its event contracts are federally regulated derivatives rather than wagers, pointing to its status as a designated contract market registered with the Commodity Futures Trading Commission (CFTC). On that basis, the company argues it is not subject to state gambling law. The CFTC approved Kalshi's sports-event contracts in 2024, opening a market that has since drawn millions in trading volume and competing platforms into the same legal gray zone.

By invoking a federal criminal statute, New York is effectively challenging Kalshi on its own legal terrain. The CFTC, which claims exclusive regulatory authority over these markets, has separately sued New York and several other states to assert that authority.

On July 29, a Second Circuit judge denied Kalshi's request for emergency relief and referred its motion for an injunction to a three-judge panel. That decision left Kalshi exposed after a penalty pause New York had granted in October 2025 expired.

The dispute traces back to October, when Kalshi sued New York officials to block the Gaming Commission's cease-and-desist order. On July 7, U.S. District Judge Analisa Torres denied Kalshi's injunction, ruling that the federal Commodity Exchange Act does not preempt New York's gambling laws with respect to Kalshi's sports-event contracts. Torres wrote that the state's interests in curbing gambling addiction and protecting sports integrity "heavily" outweighed the company's federal-preemption argument, and she noted that courts across the country remain divided on the question. Kalshi is appealing that ruling.

In April, James sued Coinbase Financial Markets and Gemini Titan on the same legal theory, asserting that their event-contract products constitute unlicensed gambling. Coinbase moved its case to federal court within a day, advancing the same federal-question argument that Kalshi is now making.

Also in April, Hochul signed an executive order prohibiting state employees from insider trading through prediction markets such as Kalshi.

The outcome of these parallel cases — before the Second Circuit panel, the CFTC's own lawsuit, and the state actions against Coinbase and Gemini — is expected to shape how prediction markets are regulated nationwide and whether they can coexist with state gambling frameworks.

Kalshi had not publicly responded to the July 31 filing as of the time of writing.