SEO description: The CFTC ordered Kalshi to keep operating after New York sued the exchange and sought more than $36 billion in damages.

Tags: Kalshi, CFTC, Letitia James, New York, Prediction Markets, Sports Betting

market_platform: Kalshi

category: Regulation

The Commodity Futures Trading Commission ordered KalshiEX LLC on August 11 to keep operating under federal market rules after New York Attorney General Letitia James sued the exchange on July 31 and sought more than $36 billion in damages. The dispute tests whether CFTC-registered event contracts are federally regulated derivatives or state-regulated gambling products.

What did the CFTC order Kalshi to do?

The CFTC, in its August 11 press release, said it exercised emergency authority after Kalshi notified the agency of a market emergency tied to New York’s lawsuit. The commission ordered Kalshi to continue operating in accordance with the Commodity Exchange Act’s core principles while the New York case proceeds.

The agency said New York’s July 31 lawsuit sought a temporary restraining order that would prohibit Kalshi from offering event contracts nationwide, along with more than $36 billion in damages. CFTC Chairman Michael Selig framed the order as a defense of national derivatives-market oversight, saying in the agency’s release that New York “has no business regulating these interstate financial markets.”

The legal basis matters because Kalshi is not a state-licensed sportsbook. The CFTC designated KalshiEX as a contract market in November 2020 under Section 5 of the Commodity Exchange Act and CFTC Regulation 38.3(a), according to the commission’s designation release. Kalshi publicly launched in 2021, but its federal designation came first.

The commission’s position, reflected in the August 11 order and its court filings in related state-enforcement disputes, is that contracts traded on a designated contract market fall under CFTC jurisdiction when they qualify as derivatives under the CEA. New York’s July 31 petition takes the opposite view for sports, elections and other event-linked contracts offered to New York users, arguing that Kalshi’s products are wagers covered by state gambling law.

What did New York allege against Kalshi?

New York’s case, brought by the People of the State of New York through Attorney General Letitia James, was filed on July 31 in state court and removed the same day to the U.S. District Court for the Southern District of New York, according to the federal docket in People of the State of New York v. KalshiEX LLC, No. 1:26-cv-06550.

The state alleges in its petition that Kalshi has operated an unlicensed gambling business in New York by offering contracts tied to sports, elections and other events without a New York State Gaming Commission license. The petition seeks a temporary restraining order, restitution, disgorgement and civil penalties. The CFTC’s August 11 release put the requested damages at more than $36 billion.

James’s July 31 announcement described Kalshi’s contracts as gambling products and rejected the exchange’s federal-labeling argument. Kalshi has argued in court filings that states cannot shut down a federally licensed exchange and that fragmented state enforcement would conflict with the national market structure Congress created under the Commodity Exchange Act.

The case followed an earlier loss for Kalshi in federal court. In KalshiEX LLC v. Williams, U.S. District Judge Analisa Torres denied Kalshi’s request for a temporary restraining order and preliminary injunction on July 7. Her amended July 13 opinion held that Kalshi had not shown that the CEA preempts New York gambling laws as applied to its sports-event contracts.

Why did tribal gaming lawyers object to the CFTC order?

Tribal gaming counsel also criticized the CFTC order, arguing that it interferes with state gambling authority and tribal gaming frameworks. Scott Crowell of Crowell Law Office Tribal Advocacy Group, speaking during an Indian Gaming Association webinar, said he had not seen such “contemptuous disregard” by a federal agency in his decades as a lawyer.

Crowell’s objection was aimed at the CFTC’s decision to instruct a regulated exchange to continue operating while New York’s enforcement case and related federal litigation are moving through court. Joe Webster, a partner at Hobbs Strauss Dean & Walker, also questioned the posture during the IGA discussion, comparing it to a gaming regulator intervening on behalf of an operator facing state enforcement.

The tribal gaming industry has a direct stake in the fight. The Indian Gaming Regulatory Act gives tribes and states a compact-based structure for casino and sports-betting operations, while CFTC-regulated event contracts can be offered through federal market infrastructure rather than state gaming licenses. That difference is now central to litigation, agency rulemaking and lobbying around sports event contracts.

The American Gaming Association has pressed the revenue argument. In its May 2026 Commercial Gaming Revenue Tracker, published July 16, the AGA said prediction-market platforms offering sports bets had cost state governments “over an estimated billion dollars” in potential gaming taxes since the start of 2025. The trade group has argued that federally regulated sports-event contracts compete with state-licensed sportsbooks without the same state tax structure.

How have courts ruled so far?

The court record is divided, which is why New York has become a high-stakes venue. Judge Torres’s July 13 amended opinion in the Southern District of New York sided with state enforcement at the preliminary-injunction stage, finding that Kalshi had not shown a likelihood of success on its preemption theory and that New York’s interests in gambling regulation weighed against an injunction.

Other courts have reached the opposite result. In Arizona, U.S. District Judge Michael Liburdi granted a preliminary injunction to the United States and the CFTC on May 5 in KalshiEX LLC v. Johnson and the consolidated federal case. The order concluded that federal law likely preempts Arizona gambling laws as applied to derivatives traded on CFTC-regulated markets.

In Minnesota, U.S. District Judge Katherine Menendez issued a July 27 preliminary injunction blocking enforcement of Minnesota’s new prediction-market statute against entities registered as designated contract markets by the CFTC. The order applied to motions brought by the CFTC, Kalshi and Polymarket, and it kept the platforms operating while the merits are litigated.

The most important appellate ruling so far came from the Third Circuit. In KalshiEX LLC v. Flaherty, decided April 6, the court affirmed a preliminary injunction against New Jersey enforcement and held that Kalshi had shown a reasonable chance of success on its argument that the CEA preempts state gambling laws as applied to sports-related event contracts traded on a CFTC-licensed designated contract market.

That appellate ruling does not control the Second Circuit, where Kalshi’s New York appeal is pending. It does give Kalshi and the CFTC federal appellate precedent to cite as they argue that sports-event contracts are derivatives within the CFTC’s exclusive jurisdiction.

What is Congress doing about sports event contracts?

The fight has moved beyond courts and agencies. Senators Adam Schiff, John Curtis and Catherine Cortez Masto introduced S. 4160, the Prediction Markets Are Gambling Act, on March 23, according to GovInfo and Schiff’s Senate office. The bill would amend the Commodity Exchange Act to prohibit certain event contracts involving sports and casino-style games.

State attorneys general have also entered the CFTC rulemaking fight. A coalition of 44 attorneys general submitted a July 27 comment letter opposing the agency’s proposed rule, Prediction Markets; Public Interest Determinations, published June 12 at 91 FR 35806. The proposal set a July 27 comment deadline and asked how the CFTC should apply the CEA’s public-interest restrictions to event contracts.

The attorneys general argued in that letter that sports bets and gambling should remain subject to state law rather than being traded on designated contract markets. The CFTC’s June proposal followed an earlier March advance notice of proposed rulemaking on prediction markets, but the 44-state letter responded to the later proposed rule, not the earlier notice.

What comes next in New York?

The immediate milestone is the Second Circuit’s handling of Kalshi’s appeal from Judge Torres’s July 7 denial of preliminary relief, alongside the removed New York enforcement case in the Southern District of New York. Kalshi has cited the CFTC’s August 11 emergency order as part of its effort to keep operating while the litigation proceeds.

If the Second Circuit sides with Kalshi, New York’s ability to enforce its gambling laws against the exchange could narrow while the broader case continues. If the court affirms Judge Torres, the CFTC’s emergency order will remain the main federal basis for Kalshi’s continued operation in New York as the state’s more than $36 billion damages claim moves forward.