New York Attorney General Letitia James has initiated legal action against Kalshi, accusing the platform of conducting an unlicensed gambling business. In the lawsuit, the state aims to halt Kalshi’s activities within New York and demand the company pay financial penalties as well as provide restitution to its users.
The clash over legal boundaries
This legal dispute began after the New York State Gaming Commission issued Kalshi a cease-and-desist order in October 2025. The company responded by challenging the commission in federal court. Last July, a federal judge rejected Kalshi’s request for a preliminary injunction, and an appeals court later refused to suspend enforcement while the case continued.
Kalshi’s head of communications, Elisabeth Diana, criticized the lawsuit as a form of “political theater.” She argued that New York has no right to shut down a marketplace that operates under federal licensing. She warned that such interference would force users to seek services outside the country. This could harm local access.
CFTC defends federal oversight
The Commodity Futures Trading Commission (CFTC) has stepped in to defend Kalshi, filing an emergency motion to block New York’s enforcement attempts. The CFTC argues that the state’s actions infringe on its exclusive authority under the Commodity Exchange Act, which governs regulated exchanges like Kalshi. According to the CFTC, allowing states to impose their own rules could weaken federal oversight and create inconsistencies.
This is not the first time the CFTC has taken this position. In conflicts with at least nine other states, the agency has maintained that state-level prohibitions on specific event contracts contradict federal oversight. It also said this could lead to a confusing legal landscape.
Growth and regulation of prediction markets
Prediction markets, including Kalshi, let users buy and sell contracts based on the outcomes of future events. The market’s behavior often reflects the perceived probability of those events occurring. Kalshi started moving into blockchain-based services in December 2025, introducing tokenized markets on the Solana network and later expanding to support other blockchains.
Kalshi is not the only firm in the space facing scrutiny. Its competitor, Polymarket, has also encountered legal and regulatory challenges across multiple countries. These challenges primarily concern gambling regulations and licensing. In a notable example, analytics company Chainalysis reported that over $20 billion in trades involving the 2026 FIFA World Cup passed through blockchain-based prediction markets. This engaged more than 400,000 user wallets.