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States Sue To Halt Illegal Gambling; Federal Government Intervenes Claiming Exclusive Jurisdiction Over Prediction Markets
THE LEGAL BEAT
New York has sued KalshiEX, LLC (Kalshi) for running an illegal gambling operation in New York through its prediction market platform.
Gambling is illegal in New York with the exception that New York allows certain gambling businesses to operate after licensing by the New York State Gaming Commission.
In a lawsuit filed in the Supreme Court of New York, New York County, New York State says Kalshi is operating as a business offering a “prediction market,” allowing bettors to gamble on a variety of sports and other events via website and mobile devices.
Kalshi allows users to bet money on the outcome of a wide range of future events, including sports betting, claiming it offered legal sports betting markets accessible to Americans in all 50 states, and encouraging New York bettors to wager on the outcomes of major sporting events.
Kalshi also offers users the ability to bet on events involving culture and elections on its website and app.
According to the lawsuit, Kalshi has reported a $22 billion valuation for its gambling business and an annualized transaction volume of $178 billion, while avoiding the legal and financial consequences of New York’s close regulation of gambling by offering what is quintessentially wagering under the guise of “event contracts” on a “prediction market.”
New York’s Office of the Attorney General (OAG) says Kalshi’s prediction market is an illegal, unlicensed gambling operation, exposing New Yorkers – including those under the legal gambling age of 21 – to serious personal and financial risk. The lawsuit seeks a court order stopping Kalshi from doing business in New York and requiring the company to pay fines, forfeit all illegal gains, and pay restitution to users.
“New York’s gambling laws protect children from underage betting and help combat gambling addiction,” said Attorney General Letitia James. “No matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple. By ignoring our laws, Kalshi is running an illegal operation and harming New Yorkers in the process. We are taking them to court to uphold our laws and protect New Yorkers.”
In October 2025, the Gaming Commission demanded that Kalshi cease and desist their ongoing operation of an unlicensed mobile sports wagering platform.
The lawsuit alleges that Kalshi’s prediction markets meet the legal definition of gambling because the outcomes of the events on which its users are betting are uncertain and outside the control of the bettor or hinge on a game of chance.
Kalshi has not obtained a license from the New York State Gaming Commission, sidestepping its obligation to pay taxes like licensed casinos and mobile sports gambling platforms do. This tax revenue from gambling regulation funds public schools, sports programs for underserved youth, and problem gambling education and treatment.
In the lawsuit, OAG is asking the court to order Kalshi to forfeit all illegal gains, distribute restitution to consumers who were harmed, and pay fines equal to three times the gains the company made through its illegal actions.
New York receives significant tax revenue from licensed casinos and mobile sports wagering licensees, the latter of which are taxed at a rate of approximately 51% of gross revenues.
Kalshi uses social media to say it is “legal in all 50 states.” New York State disagrees.
Other states have filed lawsuits or taken direct legal enforcement action against the prediction market platform Kalshi including Massachusetts, Washington, Kentucky, Rhode Island, Wisconsin, and Arizona. In many instances, the federal government has actively intervened in these jurisdictional disputes, filing federal lawsuits against multiple states to block local enforcement. The Commodity Futures Trading Commission contends in court filings that it, not the states, regulates these companies and that it has exclusive jurisdiction, preempting state laws.
In April, Attorney General James sued Coinbase and Gemini for running illegal gambling platforms. Also in April 2026, Governor Hochul signed an Executive Order banning state employees from engaging in insider trading using prediction markets like Kalshi. In January of 2026, Attorney General James sued Valve, a video game developer, for illegally promoting gambling through video games popular with children and teenagers.
