New York's attorney general has hauled prediction market Kalshi into court, alleging the platform is running an unlicensed gambling operation, and the state wants up to $36 billion in penalties.
Attorney General Letitia James filed the lawsuit on Friday, accusing Kalshi of violating state laws that regulate wagering and protect consumers from unregulated betting. The suit does not seek to shut Kalshi down. Instead, it demands the company submit to New York's gambling regulators and tax authorities, forfeit what the state calls illegal profits, and pay restitution to users across the country.
A statement of facts accompanying the complaint pegged the potential penalty at an estimated $36 billion, a figure that, if enforced, would dwarf most regulatory fines in the financial technology space. The state's filing also alleged that Kalshi allows wagering on games involving New York college teams and permits sports betting by users under 21, both of which violate state law.
The attorney general's office left little room for ambiguity about how it views Kalshi's business model. ABC News reported that the lawsuit characterized Kalshi as a company seeking "to avoid the legal and financial consequences of New York's close regulation of gambling by offering what is quintessentially wagering."
James put it bluntly in a public statement:
"New York's gambling laws protect children from underage betting and help combat gambling addiction. No matter what they call themselves, prediction makers like Kalshi are gambling platforms, plain and simple."
Governor Kathy Hochul backed the suit with her own statement, framing the action as a matter of consumer protection and fair competition:
"Kalshi has chosen to ignore New York's gambling laws, which exist to protect consumers, prevent problematic gambling, deliver funding for critical public services and ensure that every company plays by the same rules."
Hochul's emphasis on "funding for critical public services" points to a financial motive beyond consumer safety. New York collects substantial tax revenue from licensed gambling operators. A platform that skirts those licensing requirements also skips the tax bill, and Albany notices.
Kalshi's Head of Communications, Elisabeth Diana, dismissed the lawsuit as political posturing. She told ABC News:
"It's sad to see this type of political theater from the leadership in our own state. 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."
That response frames the core legal dispute. Kalshi describes its event contracts as federally regulated derivatives, not gambling products. The company considers itself a federally licensed exchange, a designation that, if courts agree, could place it outside New York's jurisdiction entirely.
The Commodity Futures Trading Commission appears to side with that view. The CFTC filed for a temporary restraining order to halt New York's lawsuit, asserting that prediction markets fall under its exclusive federal authority. The timing of the CFTC's filing, whether it came before or after the state's complaint, was not specified.
The Kalshi suit is part of a broader push by James against prediction markets operating in New York. The attorney general also filed lawsuits against cryptocurrency companies Coinbase and Gemini, alleging their prediction market products likewise constitute illegal gambling under state law. Neither company holds a license from the New York State Gaming Commission. Coinbase allegedly allowed users to wager on sports outcomes, including point spreads, such as whether the New York Knicks would win by more than 6.5 points.
James applied the same logic across all three cases. "Gambling by another name is still gambling and it is not exempt from regulation under our state laws and Constitution," she said in connection with the Coinbase and Gemini suits.
Coinbase's Chief Legal Officer, Paul Grewal, pushed back in terms nearly identical to Kalshi's defense: "Prediction markets are federally regulated national exchanges. This issue is proceeding in New York federal court as we speak. Coinbase will continue to fight for the federal oversight of these markets that Congress intended."
The parallel lawsuits make clear that New York is not singling out one company. James is staking out a legal position that every prediction market operating in the state without a gaming license is breaking the law, regardless of whether the platform calls its products "event contracts" or "derivatives."
Strip away the press releases and the real question is jurisdictional. Prediction markets have operated under CFTC oversight at the federal level. The CFTC has said these markets are its exclusive purview. New York disagrees and wants to regulate, and tax, them as gambling.
Both sides have leverage. New York controls one of the largest consumer markets in the country and enforces some of the nation's strictest gambling regulations. The CFTC controls the federal derivatives framework that companies like Kalshi have built their businesses around. A court will have to decide which authority wins.
The CFTC's decision to seek a restraining order against a state attorney general's lawsuit is itself unusual. Federal regulators do not typically intervene to block state enforcement actions unless they believe their own regulatory territory is under direct threat. That move signals the federal government views New York's suit as more than a local consumer protection matter, it sees it as a challenge to federal preemption over financial markets.
For Kalshi, the stakes are existential. A $36 billion penalty, even as a theoretical ceiling, would be devastating. And if New York's legal theory holds, other states could follow with their own lawsuits, each demanding licensing fees, tax revenue, and profit forfeiture.
For consumers, the outcome will determine whether prediction markets remain accessible through federally regulated platforms or get pushed into a patchwork of state gambling regimes, or, as Kalshi warns, driven offshore entirely.
When a state attorney general and a federal regulator are fighting each other in court over who gets to oversee an industry, the one thing you can be sure of is that neither is primarily worried about the consumer.
