New York Attorney General Letitia James sued prediction market Kalshi in state court on Friday, alleging that the company runs an “illegal gambling operation” without proper state licenses.
James’ lawsuit comes amid disputes between an independent federal agency and state governments over who has jurisdiction to regulate the rapidly growing prediction market industry, which includes companies like Kalshi and Polymarket. The Commodity Futures Trading Commission, which regulates prediction marketplaces, has argued that the companies are “designated contracted markets” that offer event contracts, otherwise known as swaps, that offer odds on yes-no scenarios.
State governments have rebutted that argument, contending that the sport contracts offered on prediction markets mirror sports gambling that falls under states’ regulatory purview. Forty-four state attorneys general, including James, signed a letter to the CFTC on Monday asking that the agency “start afresh with its rulemaking and clarify that sports bets and gambling cannot be traded on [designated contract markets], but are instead subject to state law.”
James used a similar stance in her lawsuit against Kalshi, accusing the company of circumventing state regulations on sports betting “by offering what is quintessentially wagering under the guise of ‘event contracts’ on a ‘prediction market.’” The lawsuit also accused Kalshi of allowing individuals under the age of 21 to wager on the platform.
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James’ lawsuit asked a judge to bar Kalshi from operating within the state by offering “contracts relating to sports, culture, elections, and other events” without required licenses. It also asked for Kalshi to pay restitution to consumers, pay a fine equal to three times the gains the company made and forfeit any alleged illegal profits.
“New York’s gambling laws protect children from underage betting and help combat gambling addiction,” James said in a statement announcing the lawsuit. “No matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple. By ignoring our laws, Kalshi is running an illegal operation and harming New Yorkers in the process.”
The CFTC preemptively requested a temporary restraining order in federal court ahead of James’ lawsuit to stop the state from pursuing civil or criminal enforcement actions against Kalshi while litigation continues.
Kalshi and New York were engaged in “ongoing negotiations” on a comprehensive tax proposal prior to the lawsuit, a source familiar with Kalshi’s negotiations told NOTUS. The source said New York did not respond to the proposal “in substance” and then “abandoned” the idea.
Sean Butler, a spokesperson for Gov. Kathy Hochul, said Kalshi has “blatantly violated state law” and “deprived New Yorkers of billions in revenue” in response to a request for comment about the tax negotiations.
“Weak attempts to self-regulate are meaningless,” Butler said. “If a company willfully violates state law, they must face consequences.”
Elisabeth Diana, Kalshi’s head of communications, called New York’s lawsuit “political theater.”
“States can’t just shut down a federally licensed exchange,” Diana said in a statement. “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.”
This story was updated to reflect new statements from Hochul and Kalshi.
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