Tags: Kalshi, CFTC, New York, Letitia James, Robinhood, Prediction Markets
Market platform: Kalshi
Category: Regulation
New York’s $36 billion lawsuit against Kalshi has become the clearest state-level test of whether federally registered event-contract exchanges can keep offering sports-linked markets over state gambling objections. The case follows a July 7 federal court loss for Kalshi in Manhattan and a July 14 CFTC order in Michigan that took the opposite regulatory position.
What is New York suing Kalshi over?
Attorney General Letitia James and Governor Kathy Hochul sued KalshiEX LLC on July 31, alleging that the company has operated an unlicensed gambling business in New York by offering event contracts tied to sports, elections, culture, and other outcomes without a New York State Gaming Commission license. The state’s complaint seeks injunctive relief, restitution, disgorgement, treble damages, and statutory penalties.
The headline number is unusually large even by state enforcement standards. According to the July 31 complaint and related court filings described in The Block and other outlets covering the filing, New York estimates the requested relief could exceed $36 billion after a full accounting. The state’s theory includes three times Kalshi’s alleged gains from unlawful activity, plus $100,000 for each unauthorized sports-wagering offer.
New York also alleges that Kalshi allowed users aged 18 to 20 to trade sports-related contracts, while state law requires a person to be at least 21 to participate in legal mobile sports wagering. The complaint frames that age gap as a consumer-protection issue, not just a licensing dispute, because licensed sportsbooks must comply with age verification, responsible-gambling, tax, and advertising rules administered through the state gambling regime.
Why did Kalshi lose in Manhattan before the new lawsuit?
Kalshi had already tried to block New York enforcement before the state filed the July 31 damages action. On July 7, a Manhattan federal judge denied Kalshi’s request for preliminary relief against the New York State Gaming Commission, finding that Kalshi had not shown it was likely to succeed on its argument that the Commodity Exchange Act preempts New York’s gambling laws as applied to its sports contracts.
The New York Attorney General’s office highlighted that ruling in a July 8 statement, saying Kalshi had lost its lawsuit against the Gaming Commission. The order left Kalshi without the same type of federal court protection it has received in some other jurisdictions, and it gave New York a stronger litigation posture heading into the broader enforcement case filed later in the month.
Kalshi’s position remains that its contracts are swaps traded on a federally registered designated contract market, putting them under the Commodity Futures Trading Commission’s exclusive jurisdiction. New York’s position is that the contracts function as gambling products when users stake money on uncertain outcomes such as sports events, and that federal derivatives registration does not erase state gambling law.
How have other courts ruled on Kalshi’s sports contracts?
The court record is divided. The strongest appellate ruling for Kalshi came from the U.S. Court of Appeals for the Third Circuit in KalshiEX LLC v. Flaherty, decided April 6, 2026. The Third Circuit affirmed a preliminary injunction against New Jersey officials and held that Kalshi had shown a reasonable chance of proving that the Commodity Exchange Act preempts New Jersey law from reaching sports-related event contracts traded on a CFTC-licensed designated contract market.
Minnesota also produced a favorable ruling for prediction-market operators. On July 27, a federal judge blocked Minnesota from enforcing a new state law against CFTC-registered designated contract markets, allowing Kalshi and Polymarket’s U.S. platform to continue operating while litigation proceeds. That ruling reinforced the industry’s argument that state-by-state bans threaten a nationally regulated derivatives market.
Other states have moved in the opposite direction. Michigan secured a temporary restraining order in Ingham County Circuit Court on June 29 barring Kalshi from offering or facilitating sports-related contracts to Michigan residents, according to the Michigan Gaming Control Board’s June 30 statement. The order also required geolocation compliance and imposed a $120,000-per-day fine for noncompliance.
What did the CFTC order in Michigan?
The CFTC’s verified emergency intervention this summer concerned Michigan trades, not New York. In Release No. 9267-26, issued July 14, the CFTC stayed a Kalshi emergency rule change and directed KalshiEX to fulfill open trades involving Michigan residents through its normal settlement process. The agency invoked Section 8a(9) of the Commodity Exchange Act, which gives the commission emergency authority when it believes action is needed to maintain or restore orderly trading.
The Michigan dispute arose after Kalshi proposed canceling or force-liquidating certain trades in response to a state court order. The CFTC said the proposed emergency rule raised novel or complex issues requiring further review, then separately ordered Kalshi to honor the trades. CFTC Chairman Michael Selig said in the agency’s announcement that states and state courts cannot force registered entities to violate the Commodity Exchange Act and CFTC regulations.
That order matters for New York because it shows the federal regulator is willing to intervene when state gambling orders affect trades on a registered exchange. It does not, by itself, resolve New York’s lawsuit. A court still has to decide whether New York’s claims are preempted, whether Kalshi’s event contracts fall within the state’s gambling laws, and what remedies are available if the state prevails.
Why is the tax issue central to New York’s case?
New York’s gambling framework is not only about licensing. The state taxes online sports betting revenue at 51%, one of the highest rates in the country, and licensed operators generated more than $1.3 billion in state tax revenue in 2025. Those funds support public education, youth sports, and problem-gambling programs, according to New York’s public statements about gaming enforcement.
Prediction-market platforms do not pay that sports-betting tax when they operate as federally regulated derivatives venues rather than state-licensed sportsbooks. That distinction is a core economic reason state regulators are pushing back. If sports outcomes can be traded nationally as event contracts, state governments risk losing licensing control and tax revenue from a category they have treated as gambling since the Supreme Court opened the door to legal sports betting in 2018.
The market is now large enough that the fight is not theoretical. Robinhood reported $156 million in event-contract revenue for the second quarter of 2026, according to its July 29 earnings materials and coverage by The Block. That exceeded the company’s $100 million in cryptocurrency transaction revenue for the quarter and showed how quickly prediction markets have become a material retail trading business.
What is Congress and the CFTC doing next?
The CFTC is also weighing broader rules. In a March 16 Federal Register notice, the commission opened an advance notice of proposed rulemaking on prediction markets, asking how event contracts should be regulated and whether particular categories raise manipulation, insider-information, or public-interest concerns. The comment period closed April 30.
State officials have pressed the same argument outside court. On April 24, Attorney General James joined 37 other attorneys general in an amicus brief supporting Massachusetts in its case against Kalshi, according to the New York Attorney General’s office. The brief urged the Massachusetts Supreme Judicial Court to reject Kalshi’s claim that federal commodities law bars state gambling enforcement.
Congress has also entered the fight. The Prediction Markets Are Gambling Act, S. 4160, was introduced in the Senate on March 23 by Sen. Adam Schiff, with Sens. John Curtis and Catherine Cortez Masto as cosponsors, according to GovInfo. The bill would amend the Commodity Exchange Act to prohibit certain event contracts involving sports and casino-style games.
The next practical milestone is in court. New York’s July 31 action and Kalshi’s related federal preemption arguments will determine whether the state can press its $36 billion claim while other courts continue to split over sports event contracts. Until the Second Circuit, the CFTC, or Congress supplies a clearer rule, Kalshi’s legal status will depend heavily on where the next order is issued.
