New York State has sued prediction-market platform Kalshi, accusing it of running an unlicensed gambling business and seeking to bar it from operating in the state.

The lawsuit, filed in the New York Supreme Court on Friday, asks a judge to prohibit the company from operating what the state characterizes as an unlicensed gambling business. The petition also seeks a full accounting of customer bets, losses, and company gains, along with restitution, damages, and civil penalties.

Attorney General Letitia James said Kalshi's event contracts constitute illegal bets on sports, elections, and culture, and alleges the platform permits underage wagering. According to a statement published by Governor Kathy Hochul and Attorney General James, the state is seeking a penalty equal to three times Kalshi's gains from the activity, plus $100,000 for each unauthorized or attempted offer of sports or mobile sports wagering.

"New York's gambling laws protect children from underage betting and help combat gambling addiction," James said in the statement. "No matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple."

The court filing alleges that Kalshi allows users aged 18 to 20 to wager and lists markets involving New York college teams — both of which are prohibited for licensed sportsbooks operating in the state. The complaint zeroes in on the same consumer-protection guardrails that apply to licensed sportsbooks, arguing that Kalshi should be bound by them despite operating as a federally regulated exchange.

Kalshi's Response

"It's sad to see this type of political theater from the leadership in our own state," Elisabeth Diana, Kalshi's head of communications, said in an email to CoinDesk. "States can't just shut down a federally licensed exchange. This would also hurt New Yorkers, who would be driven offshore. We love New York, we love New Yorkers, and New Yorkers love our product."

Kalshi's defense hinges on its status as a Commodity Futures Trading Commission–registered designated contract market, which the company argues places its event contracts under federal commodities law rather than state gambling statutes. That federal-versus-state fault line is central to the case and has produced divergent outcomes in courts across the country.

Broader Legal Landscape

Kalshi, which targeted a $40 billion valuation during a June funding round, and the prediction markets sector more broadly are facing legal challenges across the United States. In Minnesota, Kalshi and rival Polymarket secured a temporary win when the U.S. District Court for the District of Minnesota ruled that the state's law banning prediction markets likely runs afoul of the Commodity Exchange Act, granting a preliminary injunction against the law to the two companies and the Commodity Futures Trading Commission. The New York lawsuit signals that other states remain willing to test the opposite proposition — that their gambling statutes are not preempted by federal commodities law.

Prior Regulatory Actions

According to the attorney general's statement, the lawsuit follows an October cease-and-desist order from the New York State Gaming Commission. A federal judge denied Kalshi's bid to block state regulators on July 7 and rejected an injunction pending appeal on July 27.

User Growth

The World Cup helped boost Kalshi's user base, adding 3 million users during the course of the tournament, according to CNBC. That figure is more than double the 2 million users the firm reported at the start of May. The rapid expansion has unfolded alongside intensifying legal scrutiny, raising questions about how many of those users could be affected if states succeed in restricting access to the platform.