New York sued prediction market platform Kalshi on Friday, calling it an “illegal, unlicensed gambling operation” and seeking to shut down its operations in the state and force it to forfeit all profits from the venture.
The lawsuit, filed in Manhattan state court by Governor Kathy Hochul and Attorney General Letitia James, represents the latest major legal challenge to the fast-growing prediction market industry at a time when the sector has become a significant flashpoint between state regulators and the Trump administration’s federal agencies. Kalshi has been operating since 2021 as a platform where users can place money on the outcomes of future events, expanding in 2025 into what it calls sports “trading” markets available nationwide.
New York’s complaint alleges that Kalshi accepts wagers on the outcomes of sports, elections, and cultural events without obtaining the required license from the New York State Gaming Commission. The state argues that Kalshi’s prediction markets meet the legal definition of gambling because outcomes depend on chance and are outside the bettor’s control. State investigators found that Kalshi allows users ages 18 to 20 to participate, despite New York law requiring mobile sports betting users to be at least 21 years old.
“No matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple,” James said, adding that Kalshi had chosen to ignore New York laws protecting consumers and preventing problematic gambling. The lawsuit seeks to halt Kalshi’s operations, force the company to forfeit all profits from the illegal activity, and impose civil penalties equal to three times the company’s gains. The state is also seeking $100,000 for each unauthorized or attempted wager offer and a full accounting of customer bets, losses, and company profits.
Kalshi pushed back sharply against the lawsuit, characterizing it as political theater. “States can’t just shut down a federally licensed exchange,” the company said in a statement. “This would also hurt New Yorkers, who would be driven offshore.” The company maintains that its status as a federally regulated designated contract market under the Commodity Futures Trading Commission grants it exclusive federal oversight, placing it beyond state gambling laws.
The conflict has been building since October 2025, when the New York State Gaming Commission sent Kalshi a cease-and-desist letter accusing it of running an unlicensed sports-wagering operation. Kalshi responded by filing a preemptive federal lawsuit seeking to block New York enforcement. Last month, U.S. District Judge Analisa Torres rejected Kalshi’s request for a preliminary injunction that would have prevented New York from enforcing its gambling laws, ruling that the federal Commodity Exchange Act does not preempt state gambling statutes. Torres’ decision essentially cleared the way for New York to proceed with enforcement actions.
Friday’s lawsuit represents part of a broader pattern of state challenges to prediction markets. Rhode Island sued Kalshi and Polymarket in May for unlawful sports betting. In April, New York’s attorney general sued Coinbase and Gemini over similar allegations regarding their prediction market platforms. All three companies have denied wrongdoing.
The legal battle reflects a fundamental tension over regulatory authority. Kalshi and other prediction market platforms argue they operate as financial derivatives exchanges regulated exclusively by the CFTC, where traders are essentially trading contracts with one another rather than wagering against the house. Critics and state regulators argue that this is simply gambling rebranded as financial trading. The Trump administration has firmly backed the prediction market industry and the CFTC’s authority, with the CFTC filing emergency motions to block state enforcement efforts. This backing reflects financial interests within the administration—President Trump’s son Donald Trump Jr. serves as a strategic adviser to Kalshi and has invested in competitor Polymarket.
The prediction market industry has grown explosively, with trading volume reaching nearly $24 billion by April 2026, up from less than $1 billion in June 2024. Despite the growth, multiple federal courts have reached conflicting conclusions about whether these platforms should be regulated as financial derivatives or gambling operations. A Minnesota federal judge recently blocked that state from enforcing its prediction market ban, while Judge Torres in New York sided with state enforcement authority.
The CFTC recently proposed new federal regulations in June designed to provide a clearer framework for the industry while continuing to allow most sports-related markets to operate. Meanwhile, at least 10 state legislatures have addressed prediction market legislation in 2026 as the regulatory fragmentation continues.
The New York lawsuit adds significant pressure to a prediction market industry facing mounting legal challenges across multiple jurisdictions. Whether courts ultimately rule that these platforms are regulated financial products or illegal gambling operations remains unresolved, with many legal experts expecting the issue may eventually reach the Supreme Court.