The state of New York has initiated a lawsuit against the prediction market platform Kalshi, aiming to prevent the company from operating without a valid state gambling license and to reclaim penalties and profits that could reach a staggering $36 billion.
Filed on Friday by Attorney General Letitia James, the lawsuit claims that Kalshi is running an unauthorized gambling operation by permitting users to bet on various events, including sports, elections, and cultural phenomena.
The state is pursuing compensation for impacted consumers, the seizure of allegedly unlawful profits, and fines amounting to three times the earnings from gambling activities within New York. Additionally, the attorney general’s office is also requesting $100,000 for each reported attempt to engage with customers in the state, which amplifies the potential total to $36 billion.
In response to the situation, Kalshi sought to transfer the case to federal court in Manhattan, asserting that it is a federally regulated futures exchange. However, New York is expected to contest this proposed shift in jurisdiction.
The crux of the matter revolves around whether the event contracts offered by Kalshi constitute financial instruments regulated by the Commodity Futures Trading Commission or are recognized as gambling products that require state-level licensing, taxation, and consumer protection regulations.
“States do not have the authority to shut down a federally licensed exchange,” remarked Kalshi spokeswoman Elisabeth Diana, who characterized the lawsuit as “political theater.”
New York contends that Kalshi’s contracts align with the legal definition of gambling since users place money on unpredictable outcomes outside their control. The state alleges that Kalshi has deliberately avoided the licensing and taxation requirements imposed on casinos and mobile sports betting platforms.
The CFTC, under the leadership of President Donald Trump’s appointee Michael Selig, has also filed lawsuits against states, including New York, while asserting its jurisdiction over prediction markets.
“Rather than seeking well-reasoned resolutions from the courts, Letitia James and New York are attempting to force an unprecedented immediate closure of prediction markets across the nation,” Selig expressed on X.
Rather than seek reasoned answers from the courts, Letitia James and New York seek to force an unprecedented sudden shutdown of prediction markets nationwide. The @CFTC has already sued to stop this and will continue to defend its jurisdiction.
— Mike Selig (@ChairmanSelig) July 31, 2026
Kalshi commenced operations in 2021 and expanded into sports trading in 2025, claiming to legally offer markets across the nation. Its promotional tagline boasts “Kalshi: Legal in all 50 states.” Currently, online sports betting is permitted in 39 states.
According to the attorney general’s findings, Kalshi has allowed users aged 18 to 20 to engage, while New York mandates a minimum age of 21 for mobile sports bettors.
“New York’s gambling regulations are designed to protect minors from gambling exposure and to help mitigate gambling addiction,” stated Attorney General James.
“Regardless of how they label themselves, platforms like Kalshi fundamentally operate as gambling sites. By disregarding our regulations, Kalshi is operating illegally and endangering New Yorkers. We are bringing this matter to court to uphold our laws and safeguard New Yorkers.”
Prior to the lawsuit, Kalshi engaged in negotiations with state representatives for several weeks, as noted by a source familiar with the discussions. The firm proposed frameworks focusing on self-exclusion, advertising, and consumer safeguards.
Furthermore, Kalshi suggested a tax arrangement similar to North Carolina’s, where trading in prediction markets would incur a 6% tax, contrasting sharply with the 23% tax imposed on conventional gambling revenues. The New York framework was projected to yield around $10 billion over a five-year period, as per the insider.
“Kalshi has opted to neglect New York’s gaming regulations that serve to protect consumers, curb gambling issues, fund essential public services, and ensure that all entities adhere to the same standards,” remarked Governor Hochul.
“This decision carries consequences, and in collaboration with Attorney General James, New York is taking decisive steps to end this unlawful behavior and compel Kalshi to comply, as no firm is above the law.”
This lawsuit follows previous actions taken by New York against Coinbase and Gemini regarding prediction markets and a cease-and-desist order issued to Kalshi by the state Gaming Commission in 2025.