New York sues Kalshi, claims it is ‘illegal gambling operation’

New York state sued prediction market platform Kalshi on Friday, alleging that the company is running an “illegal gambling operation.”

In a case filed in a Manhattan state court, the lawsuit claims that Kalshi accepts wagers as a gambling business in disregard for the state’s constitution and laws by not being registered with the New York State Gaming Commission. 

“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 Kathy Hochul in the press release said the state is taking the action to stop what it views as illegal behavior and bring the company into compliance with New York law. The lawsuit is seeking a permanent injunction against Kalshi. 

Kalshi, which has its headquarters offices in New York City, expressed disappointment with the decision by the state. 

“It’s sad to see this type of political theater from the leadership in our own state,” a Kalshi spokesperson said in a statement. “States can’t just shut down a federally licensed exchange… We love New York, we love New Yorkers, and New Yorkers love our product.”

The suit by the state is also seeking a total restitution to users who have placed trades on the platform, a $100,000 penalty for each attempt to offer sports wagering, and another penalty three times the amount the company has gained while allegedly operating in violation of New York law. The state estimates that could total $36 billion.

Kalshi originally sued New York state in October after the state’s Gaming Commission sent a cease and desist letter to the company. Earlier this month, a judge for the Southern District of New York denied the company’s request for a preliminary injunction and temporary restraining order against the commission. 

The same judge denied a request by Kalshi earlier this month for an injunction pending an appeal. 

“It’s an unhinged, and extraordinarily egregious piece of lawfare that’s designed to shut down not only some aspects of prediction markets but all aspects of prediction markets,” said Brian Quintenz, a Kalshi board member, about the latest move by New York in a Friday appearance on CNBC’s “Squawk on the Street.” “It’s really just an extraordinary piece of overreach from the New York state.”

The Commodity Futures Trading Commission, which sees itself as the federal regulator for prediction markets, filed for a temporary restraining order against enforcement actions by New York just before the state’s lawsuit was announced. That comes after the CFTC in April sued the state, requesting a permanent injunction from enforcing its state laws on commission-registered platforms. 

“Rather than seek reasoned answers from the courts, Letitia James and New York seek to force an unprecedented sudden shutdown of prediction markets nationwide,” CFTC Chairman Michael Selig wrote in a post on X. “The CFTC has already sued to stop this and will continue to defend its jurisdiction.”

States across the country are locked in battles with the federal government and platforms over prediction markets, which have seen their volumes surge as their sports-related event contracts have become popular with retail traders. 

Kalshi — along with other prediction market platforms — and the CFTC believe all event contracts are swaps, and thus are exclusively regulated by the commission. However, states across the country believe the sports offerings are equivalent to sports betting, which is regulated by them. 

44 state attorneys General on Monday sent a letter to the CFTC, claiming that the commission has no right to regulate sports-related event contracts, as part of a public comment period for the agency’s first draft of regulations on prediction markets. 

In a statement, the American Gaming Association — which has fought the rise of prediction markets across the country to defend traditional casino and gambling interests — praised the lawsuit from New York.

“We applaud the State of New York for taking this important and necessary action today to uphold the rule of law, protect consumers, and defend the nearly 70,000 New York jobs supported by the legal gaming industry,” AGA president and CEO Bill Miller said in the statement.

While New York cited Kalshi’s sports offering as the reason for its lawsuit, the state also went further. It claims in the lawsuit that the company’s elections, culture and some other event contract offerings also put it in contradiction with the state’s laws. 

Disclosure: CNBC and Kalshi have a commercial relationship that includes customer acquisition and a minority investment.