The state of New York has filed a lawsuit against prediction market platform Kalshi seeking at least $36 billion in damages, penalties, and other relief. Attorney General Letitia James initiated the legal action on July 31, alleging that Kalshi operates an unlicensed gambling platform that allows users to bet on outcomes they cannot influence — conduct the state says meets its legal definition of gambling.

Kalshi, which in 2022 became the first platform designated by the Commodity Futures Trading Commission (CFTC) as a registered exchange for event contracts, rejects that characterization. The company describes itself as a federally regulated prediction market that facilitates trading in event contracts rather than functioning as a sportsbook. The lawsuit tests a fundamental unresolved question in U.S. financial regulation: whether contracts traded on a CFTC-registered derivatives exchange are subject to state gambling statutes, or whether the Commodity Exchange Act creates a federal regulatory framework that preempts such state-level oversight.

Removal to Federal Court

Within hours of the lawsuit being filed, Kalshi initiated a removal — transferring the case from New York state court to federal court. The procedural move shifts the venue where the dispute will ultimately be adjudicated.

As a consequence of the removal, New York County Supreme Court Justice Melissa A. Crane denied the state's motion for a preliminary injunction as moot, noting that the motion could be refiled if the case is remanded back to state court.

JUST IN: New York County Supreme Court Justice Melissa A. Crane has denied New York State's motion for preliminary injunction against Kalshi as moot due to the removal of the case to federal court, and says the motion can be refiled when the case is remanded back to state court. pic.twitter.com/dbHt4VQh70 — Daniel Wallach (@WALLACHLEGAL) August 4, 2026

Gaming law attorney Daniel Wallach indicated that New York could renew its injunction request if jurisdiction is returned to the state level. The jurisdictional question — whether state gambling statutes can be applied to a federally registered derivatives exchange — now sits at the center of the proceedings.

Kalshi contends that New York is attempting to regulate a derivatives exchange that falls under the authority of the CFTC, not state gambling law.

CEO Responds

Speaking in a CNBC interview on August 3, Kalshi CEO Tarek Mansour defended the platform's business model. He argued that the same legal theory advanced by New York could be applied to Nasdaq, since both exchanges match counterparties and collect transaction fees.

Mansour drew parallels to regulatory battles previously faced by companies such as Uber and Airbnb, characterizing the lawsuit as resistance from entrenched gambling industry interests confronting a new competitive entrant.

New York's Allegations

The complaint alleges that Kalshi offered event contracts covering sports, elections, and entertainment without obtaining a required state gaming license. It further claims that individuals aged 18 to 20 were able to access the platform, despite New York's minimum age of 21 for mobile sports betting.

New York is seeking a permanent injunction, financial penalties, a full accounting of Kalshi's customer activity, and $100,000 for each unauthorized sports wagering offer. These remain allegations; no court has issued a final ruling on the merits.

During his CNBC appearance, Mansour stated that New York users had earned more than $200 million on Kalshi during 2026. He also said Kalshi had proposed a framework that could generate approximately $10 billion in state tax revenue over five years. Neither figure was substantiated by public data during the interview.

Prior Rulings and Regulatory Landscape

This is not Kalshi's first legal challenge in New York. On July 7, a federal judge declined to block the state from enforcing its gambling laws against Kalshi's sports-related contracts, ruling that the company had not demonstrated federal law preempts state regulations.

Federal and state regulators remain divided on the broader question. The CFTC has asserted in a separate proceeding that it possesses exclusive jurisdiction over contracts traded on registered exchanges.

Court rulings in other states have diverged. A Washington state judge ruled in favor of applying state gambling law, while a Minnesota judge issued a temporary injunction blocking that state's ban on prediction markets. The inconsistent outcomes underscore the absence of settled precedent on where regulatory authority over prediction markets resides — a gap that the New York litigation, alongside the other pending state cases, may help clarify for an industry that has grown rapidly without a definitive legal framework.

A federal judge will now determine whether New York's case remains in federal court or is remanded to state court — a decision that will significantly shape the trajectory of the litigation.