New York Attorney General Letitia James sued Kalshi on July 31, 2026, alleging the CFTC-regulated prediction market exchange is running an unlicensed gambling operation in the state. The lawsuit seeks to stop Kalshi from operating in New York without a state license and could expose the company to penalties, restitution, and forfeiture claims reported at up to $36 billion.
The case turns a long-running regulatory dispute into a direct state enforcement action against the largest U.S.-registered prediction market operator. Kalshi says its event contracts are federally regulated financial instruments. New York says sports-related contracts offered to state residents are illegal gambling when sold without approval from the New York State Gaming Commission.
What did New York allege against Kalshi?
James’s lawsuit, filed in New York Supreme Court in Manhattan, accuses Kalshi of offering sports-related event contracts to New York customers without the gambling license required for mobile sports wagering. According to the attorney general’s theory, Kalshi’s sports markets function as wagers on sporting events, even though the company lists them as event contracts on a federally regulated exchange.
The core allegations track New York’s broader enforcement position against prediction markets: Kalshi did not obtain a license from the New York State Gaming Commission, did not pay state gambling taxes, and made its platform available to users as young as 18. New York law generally requires mobile sports wagering customers to be at least 21.
The state is seeking injunctive relief, restitution for affected customers, forfeiture of alleged illegal proceeds, and civil penalties tied to Kalshi’s activity in New York. The Associated Press reported July 31 that the requested penalties could total as much as $36 billion. The exact amount would depend on how a court applies New York’s penalty statutes and how it counts the challenged transactions or customer contacts.
James and Governor Kathy Hochul framed the case as a consumer protection and state-tax enforcement action. In a July 8 statement after a federal ruling against Kalshi in a related case, the New York attorney general’s office and governor said New York’s gambling laws are designed to protect consumers and that prediction markets are included when gambling platforms violate state law.
Why does Kalshi say New York cannot regulate its contracts?
Kalshi’s central defense is federal preemption. The company argues that it is a designated contract market overseen by the Commodity Futures Trading Commission, and that the Commodity Exchange Act gives the CFTC exclusive jurisdiction over event contracts listed on federally registered exchanges.
The CFTC designated KalshiEX LLC as a contract market on November 4, 2020, according to CFTC Release No. 8302-20. In that order, the commission said KalshiEX had demonstrated its ability to comply with the Commodity Exchange Act and CFTC regulations applicable to designated contract markets.
Kalshi’s sports-event contracts became the flashpoint after the company self-certified contracts tied to sporting events on January 22, 2025, according to the Southern District of New York opinion in KalshiEX LLC v. Williams, No. 1:25-cv-08846. Under CFTC rules, designated contract markets may list contracts through self-certification unless the commission blocks them under the review process available for certain event contracts.
The CFTC has also taken its own position against state enforcement. On April 24, 2026, the agency filed a lawsuit in the Southern District of New York seeking to stop New York from applying state gambling laws against CFTC-registered contract markets. CFTC Release No. 9218-26 said the agency sought a declaratory judgment that federal law gives it exclusive authority over event contracts and a permanent injunction against enforcement of preempted state laws.
CFTC Chairman Michael S. Selig said in that April 24 release that state lawsuits were seeking to limit access to event contracts and undermine the agency’s jurisdiction over prediction markets. The CFTC said the New York case followed similar agency lawsuits in Arizona, Connecticut, and Illinois.
What did Judge Analisa Torres decide before New York sued?
Kalshi suffered a major setback on July 7, 2026, when U.S. District Judge Analisa Torres denied its request for a temporary restraining order and preliminary injunction against New York gambling regulators in KalshiEX LLC v. Williams, No. 1:25-cv-08846.
Kalshi had asked the Southern District of New York to stop the New York State Gaming Commission and its members from enforcing state gambling laws against Kalshi’s sports-event contracts while the federal case proceeded. Torres denied that request, holding at the preliminary-injunction stage that Kalshi had not shown it was likely to succeed on its preemption theory.
The July 7 opinion said the Commodity Exchange Act gives the CFTC exclusive jurisdiction over certain derivatives, but it did not read that provision as automatically blocking New York from enforcing gambling laws against sports-event contracts. The court also pointed to the Commodity Exchange Act’s special rule for event contracts, which allows the CFTC to review and prohibit contracts involving gaming or activity unlawful under federal or state law when the commission finds them contrary to the public interest.
Torres dismissed the New York State Gaming Commission itself from the case on Eleventh Amendment immunity grounds, while addressing Kalshi’s request for relief against individual commission officials. A July 13 order corrected a scrivener’s error in the opinion, clarifying that the relevant federal statute refers to the CFTC’s authority to determine whether covered event contracts are contrary to the public interest.
Kalshi appealed to the U.S. Court of Appeals for the Second Circuit on July 8, 2026, according to the Justia docket for KalshiEX LLC v. Williams, No. 26-1835. The appeal gives Kalshi a path to challenge Torres’s preemption analysis while New York pursues its state-court enforcement claims.
Is this only a New York fight?
No. New York is now one of the most important venues because of its market size and because the state has moved from regulatory warnings and cease-and-desist activity to a civil enforcement lawsuit against Kalshi. But the legal question is national: whether CFTC registration shields prediction market exchanges from state gambling law when the contracts are tied to sports or other events states classify as wagering.
The CFTC’s April 24 New York lawsuit says the agency is trying to preserve federal jurisdiction over prediction markets. The same release said the commission had already sued Arizona, Connecticut, and Illinois. New York’s attorney general, meanwhile, joined a bipartisan coalition of 38 attorneys general in April supporting Massachusetts in its lawsuit against Kalshi over sports betting, according to the New York attorney general’s April 24 release.
That coalition argued that Kalshi’s sports contracts should remain subject to state gambling laws. Kalshi and the CFTC take the opposite position, arguing that the contracts are federally regulated derivatives and that state licensing regimes cannot be used to shut down CFTC-registered markets.
The result is a two-front conflict. State regulators and attorneys general are trying to apply gambling licensing, age limits, tax rules, and consumer-protection regimes to prediction market products. The CFTC is trying to defend federal control over exchanges and contracts it views as falling within the Commodity Exchange Act.
What are the stakes for Kalshi and the prediction market industry?
For Kalshi, New York’s lawsuit creates immediate legal and operational risk in one of the country’s largest consumer markets. A state-court order barring Kalshi from operating in New York without a gaming license would restrict access to a major customer base and could strengthen other states’ arguments that sports-event contracts are regulated wagering products.
The damages demand is also material, even if the final number is likely to be contested throughout the case. The state’s requested relief includes restitution, forfeiture, and penalties. A court would still have to decide liability, available remedies, and how any penalty calculation applies to Kalshi’s New York activity.
The broader industry risk is precedent. Polymarket, PredictIt, Coinbase, Gemini, and other prediction market or event-contract businesses do not all share Kalshi’s regulatory posture, but every major operator has an interest in where courts draw the line between federal derivatives oversight and state gambling authority.
A ruling for New York would make state-by-state compliance harder to avoid, especially for sports contracts. A ruling for Kalshi or the CFTC would strengthen the argument that a federally registered exchange can list event contracts nationwide without obtaining separate gambling licenses from each state.
The next concrete milestone is the litigation calendar in two courts: Kalshi’s Second Circuit appeal from Judge Torres’s July 7 order, and New York’s July 31 state-court enforcement action. Those proceedings will determine whether New York can keep pressing its gambling-law case while the federal preemption fight continues.
