Overview
- New York State is aiming to close Kalshi’s operations and demand three times its profits, estimating damages at a minimum of $36 billion.
- The Commodity Futures Trading Commission had sought a restraining order against New York's actions just a day prior.
- Kalshi has faced restrictions in Michigan and Washington, while it was denied relief in New York, with Minnesota being the only exception.
The New York State Attorney General is pursuing at least $36 billion from Kalshi, requesting the court to terminate its prediction market and reclaim three times its earnings. Attorney General Letitia James filed the petition on Friday, accompanied by a motion for a temporary restraining order, alleging that the platform operates as an unlicensed gambling entity across eight counts. The estimated damages are set as a minimum, pending a comprehensive accounting.
The allegations encompass violations ranging from the gambling prohibition in the New York Constitution, illegal bookmaking, and possession of gambling records, to unlicensed mobile sports betting and infractions of the federal Wire Act. Additionally, the state seeks $100,000 for each instance of sports betting offered, along with restitution and disgorgement.
“Kalshi has opted to disregard New York’s gaming regulations, which are designed to protect consumers, mitigate problematic gambling, fund essential public services, and ensure fair competition,” stated New York Governor Kathy Hochul, emphasizing the state's commitment to halting the platform's "illegal activities" and enforcing compliance.
Investigators conducted test bets, including four contracts on Connecticut defeating Michigan in April for a total of $1.14 including fees. The petition claims that Kalshi permits individuals as young as 18 to open accounts, while New York mandates a minimum age of 21, and offers betting markets on games involving New York college teams, which licensed operators are prohibited from doing.
Federal-State Tension
The Commodity Futures Trading Commission (CFTC) initiated legal action first, filing a lawsuit against New York in April to assert that federal law grants it exclusive authority over event contracts. On Thursday, the CFTC sought a restraining order in that case to prevent New York from pursuing criminal or civil actions against Kalshi or other CFTC-registered platforms. Nonetheless, New York proceeded with its filing the following day.
Kalshi has largely faced setbacks. Last October, it sued the New York State Gaming Commission in the Southern District, was denied a preliminary injunction on July 7, and subsequently refused protection while appealing on July 27. A judge in Michigan imposed restrictions on it in June, while King County Superior Court granted Washington a preliminary injunction on July 20. Its only significant victories include a ruling from the Third Circuit that upheld an injunction against New Jersey in April and a favorable decision in Minnesota, where a federal judge blocked the state's ban on July 27.
The ruling in Minnesota hinged on whether event contracts qualify as swaps under the Commodity Exchange Act. Judge Katherine Menendez determined that many do, particularly noting sports and pop-culture markets as questionable cases. New York's petition primarily targets sports betting.
State vs. Federal Authority
New York is the latest battleground in an ongoing campaign initiated by the Trump administration. The CFTC has also taken legal action against Illinois, Arizona, and Connecticut over their attempts to regulate event contracts, and has added Wisconsin to this list, moving swiftly against Minnesota shortly after its ban became law. The former president has openly supported the agency, labeling state officials opposing prediction markets as "SCUM."
Kalshi's own valuation, as cited in the petition, stands at $22 billion with an annualized trading volume of $178 billion. James had previously sued Coinbase and Gemini in April under similar allegations.