New York Targets Kalshi with Lawsuit Seeking Up to $36 Billion Over Alleged Illegal Gambling

New York has sued prediction market operator Kalshi, seeking to block the company from operating without a state gambling license and recover penalties and gains that could total as much as $36 billion.

The lawsuit, filed Friday by Attorney General Letitia James, alleges that Kalshi operates an illegal gambling platform by allowing users to wager on sports, elections, culture and other events. The state seeks restitution for affected consumers, forfeiture of allegedly illegal gains, and fines equal to three times the proceeds generated through gambling activity in New York, plus $100,000 for each alleged attempt to contact customers in the state.

Kalshi sought to move the case to federal court in Manhattan, arguing that it is a federally regulated futures exchange. The dispute centers on whether its event contracts are financial products overseen by the Commodity Futures Trading Commission or gambling products subject to state licensing, taxation and consumer-protection laws.

Federal Authority Meets State Enforcement

Kalshi began operating in 2021 and introduced sports trading in 2025, claiming it could legally offer markets nationwide with the tagline “Legal in all 50 states.” The attorney general’s investigation found that Kalshi allows users aged 18 to 20 to participate, while New York requires mobile sports bettors to be at least 21. “New York’s gambling laws protect children from underage betting and help combat gambling addiction,” said James.

CFTC leadership under Trump appointee Michael Selig has sued states including New York while asserting federal authority. Selig posted on X: “Rather than seek reasoned answers from the courts, Letitia James and New York seek to force an unprecedented sudden shutdown of prediction markets nationwide.” Kalshi spokeswoman Elisabeth Diana called the lawsuit “political theater,” stating “States can’t just shut down a federally licensed exchange.”

As reported by Yogonet International, the suit follows a 2025 cease-and-desist order issued to Kalshi by the state Gaming Commission and earlier actions against Coinbase and Gemini. Prior to the filing, Kalshi spent weeks negotiating with state officials, as a person familiar with the matter told the Wall Street Journal. The company proposed a tax agreement modeled on North Carolina, where prediction market trades will face a 6% tax compared with 23% on traditional gambling earnings. The New York proposal would have generated an estimated $10 billion over five years.

The Open Question for Market Participants

This litigation exposes the core jurisdictional clash between federal futures regulation and state gambling enforcement, with substantial financial stakes that could reshape how prediction markets operate. The aggressive penalty structure and age-compliance allegations highlight real risks for platforms that treat event contracts as distinct from traditional betting.

For client-partners in the sector, the structural shift will likely turn on whether courts affirm CFTC preemption or uphold state licensing requirements. Prolonged uncertainty is the immediate risk as this case advances, demanding close monitoring of the federal venue challenge and any negotiated resolution.

Reporting: Yogonet International