State Alleges Kalshi Violates Laws With Unregistered Wagering Platform
New York state launched a legal challenge against prediction market platform Kalshi, accusing the company of running an 'illegal gambling operation.' The state filed its lawsuit in a Manhattan court, claiming that Kalshi is processing wagers without being registered with the New York State Gaming Commission. It says this violates the state's constitution and its gambling laws. In a press release, Attorney General Letitia James emphasized that regardless of what Kalshi calls its services, the company is essentially engaging in illegal gambling. She said it is negatively affecting New Yorkers.
Governor Kathy Hochul echoed these concerns in a separate press release. She stated the state is taking legal action to stop what it views as unlawful activity. The state wants to make Kalshi follow New York's regulations. The lawsuit seeks a court order to permanently halt Kalshi’s operations in the state. It also asks for financial compensation for users who have used the platform. The lawsuit also requests hefty penalties. New York estimates the total potential penalties could reach up to $36 billion.
Kalshi's Response to the Lawsuit
Kalshi, which operates out of New York City, reacted by calling the state's lawsuit a form of 'political theater.' A spokesperson for the company claimed that the state is attempting to shut down a 'federally licensed exchange.' They expressed disappointment with the leadership of New York. The company stressed its love for the city and its residents. They noted that many New Yorkers enjoy its product and what it offers.
Earlier this month, a federal judge in the Southern District of New York rejected Kalshi's request to halt the Gaming Commission's enforcement and to obtain a temporary restraining order. That same judge also dismissed a request from Kalshi for an injunction during the appeal process. Kalshi board member Brian Quintenz criticized New York's lawsuit during a Friday appearance on CNBC's 'Squawk on the Street.' He called it 'unhinged' and 'extraordinarily egregious lawfare.' He said it is aimed at closing down all aspects of prediction markets.
Federal Agency Intervenes
The Commodity Futures Trading Commission (CFTC), which considers itself the federal regulator for prediction markets, has intervened to block New York's legal efforts. The CFTC filed a temporary restraining order just before the lawsuit was publicly announced. Additionally, in April, the CFTC took its own legal action, seeking a permanent injunction to prevent New York from enforcing its state laws on platforms it has registered. CFTC Chairman Michael Selig criticized the state's approach on social media, saying New York is trying to shut down prediction markets without seeking a lawful process through the courts.
The dispute between New York and Kalshi is part of a larger legal battle between state governments and the federal government over the regulation of prediction markets. While states like New York argue that these markets are a form of sports betting that they have the right to regulate, the CFTC and prediction market platforms like Kalshi claim the contracts fall under the category of financial swaps, which are regulated at the federal level. The disagreement has drawn in 44 state attorneys general, who recently sent a letter to the CFTC stating it has no authority to regulate contracts related to sports events during a public comment period for the agency’s first draft of regulations on prediction markets.
Industry Reaction and Broader Implications
The American Gaming Association (AGA), a lobbying group that has consistently opposed the rise of prediction markets to protect traditional casino and gambling industries, supported New York's lawsuit. In a statement, AGA President and CEO Bill Miller praised the state's legal action, calling it 'important and necessary' to protect the legal gaming industry, uphold the rule of law, and safeguard the nearly 70,000 New York jobs in the field. While the state focused its lawsuit on Kalshi's sports offerings, it also alleged that the company's contracts related to elections, culture, and other events are in conflict with New York's legal framework.