New York Sues Kalshi Over Alleged Illegal Sports Betting

Jonathan Rodriguez

Written by: Jonathan Rodriguez

Published: Mon Aug 03, 2026, 7:00 am ET

Read Time: 4 minutes

New York Sues Kalshi Over Alleged Illegal Sports Betting

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New York Attorney General Letitia James has filed a sweeping lawsuit against Kalshi. AG James accused the prediction market platform of operating an illegal, unlicensed sports betting business across the state.

The lawsuit, filed in Manhattan state court on July 31, claims Kalshi violated New York gambling laws by offering sports event contracts without obtaining the licenses required of regulated operators. 

State officials argue the company has sidestepped the rules governing US online sportsbooks while exposing consumers to unregulated betting products.

New York is seeking an injunction to stop Kalshi from operating in the state. The complaint also demands disgorgement of profits, restitution for affected users, and civil penalties that state officials estimate could total roughly $36 billion.

The latest action further escalates the growing conflict between state regulators and federally regulated prediction markets. 

It also arrives as Kalshi continues to fight multiple legal battles over whether its sports event contracts qualify as financial derivatives or illegal sports wagers.

New York Says Kalshi Violated State Gambling Laws

Attorney General James' lawsuit alleges Kalshi has conducted unlawful gambling activities without approval from the New York State Gaming Commission.

According to the complaint, Kalshi's sports prediction contracts function like traditional sports bets. Therefore, the state argues they fall under New York gambling laws rather than federal commodities regulations.

The lawsuit claims Kalshi has avoided licensing requirements, consumer protection standards, responsible gambling safeguards, and tax obligations that licensed sportsbooks must meet. State officials also allege the platform permitted individuals under New York's legal gambling age of 21 to access its markets.

The complaint further argues that Kalshi gained an unfair competitive advantage over licensed operators by avoiding regulatory costs while continuing to offer sports-related contracts.

Attorney General James made the state's position clear after announcing the lawsuit.

"No matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple," said New York Attorney General Letitia James in a press release announcing the lawsuit. 

"By ignoring our laws, Kalshi is running an illegal operation and harming New Yorkers in the process."

Governor Hochul: Kalshi Ignored State Sports Betting Laws

New York Governor Kathy Hochul also criticized Kalshi's continued operations in the state.

She said New York's gaming laws exist to protect consumers, support public services, and ensure licensed operators compete under the same regulatory framework.

"Kalshi has chosen to ignore New York's gaming 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," Governor Hochul said. 

"This choice has consequences, and working closely with Attorney General James, New York is taking action to stop this illegal behavior and bring Kalshi into compliance, because no company is above the law."

CFTC Moves Quickly to Defend Kalshi

The lawsuit immediately prompted a response from the Commodity Futures Trading Commission.

The federal regulator filed its own action seeking a temporary restraining order. This would prevent New York from enforcing its lawsuit while the jurisdictional dispute continues.

The CFTC argues Congress granted it exclusive authority under the Commodity Exchange Act to regulate federally approved event derivatives traded on designated contract markets like Kalshi. 

Additionally, the agency maintains that Kalshi's sports event contracts are financial derivatives rather than traditional sports wagers. Because of that distinction, the CFTC argues federal law preempts conflicting state gambling laws.

According to the agency, allowing individual states to regulate federally approved derivatives would undermine the national commodities framework. The regulator also warned that conflicting state enforcement actions could disrupt markets operating under federal oversight.

Kalshi has consistently argued that its prediction markets are lawful event derivatives regulated under the Commodity Exchange Act. They maintain that their contracts are financial products, not sports bets. Therefore, their contracts fall under the CFTC's exclusive jurisdiction rather than state gambling regulators.

Another Legal Setback Adds Pressure on Kalshi

The New York lawsuit marks another major legal challenge for Kalshi as it continues defending its prediction markets nationwide.

The latest complaint follows another recent setback in federal court. Earlier, the U.S. District Court for the Southern District of New York denied Kalshi's second request for an emergency injunction.

Kalshi had sought emergency relief while challenging New York's efforts to block its sports prediction markets. However, the court declined to grant the request, allowing the state's enforcement efforts to continue while litigation proceeds.

With the state now seeking billions in penalties and a permanent injunction, the legal battle has entered a new phase.

The outcome could shape how prediction markets operate across the country. A victory for New York could encourage additional states to pursue similar actions against federally regulated event contract platforms. 

Conversely, a ruling favoring Kalshi and the CFTC could strengthen federal preemption and limit states' authority over prediction markets that resemble sports betting.

Jonathan Rodriguez
Jonathan Rodriguez

Jonathan is an avid basketball fan, and is often looking forward to the next upcoming NBA season when not checking players' stats during games. He also likes to keep his ears on the ground for the latest rumblings in the online casino industry.

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