By Jonathan Stempel
NEW YORK, July 31 (Reuters) – New York’s attorney general sued Kalshi on Friday, claiming that its prediction market platform violates state laws against illegal gambling.
In a petition filed in a state court in Manhattan, Attorney General Letitia James said Kalshi failed to obtain a New York State Gaming Commission license to operate its platform, where people trade based on the predicted outcomes of sports, elections and other events.
The attorney general said such platforms can encourage problem gambling, including by people under age 21, and endanger people’s financial, emotional and physical health.
She filed similar petitions in April against two other prediction market operators, Coinbase Financial Markets and Gemini Titan, saying all three companies’ so-called event contracts were “quintessentially” gambling.
“New York’s gambling laws protect children from underage betting and help combat gambling addiction,” James said in a statement. “No matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple.”
CFTC CHALLENGES NEW YORK
Prediction markets such as Kalshi and Polymarket have soared in popularity since the 2024 U.S. presidential election, when they fared better than pollsters in predicting Republican Donald Trump’s victory over Democrat Kamala Harris.
Their growth has sparked a flurry of lawsuits and countersuits over the authority of individual U.S. states, rather than the federal government, to regulate the industry.
The U.S. Commodity Futures Trading Commission has claimed exclusive oversight and challenged regulatory activity in at least nine states including New York, which it sued in April.
“It’s sad to see this type of political theater from the leadership in our own state,” New York-based Kalshi said in a statement. “States can’t just shut down a federally licensed exchange.”
Less than one hour before New York sued Kalshi, the CFTC filed an “emergency” motion in Manhattan federal court to stop the state’s enforcement activity, calling it “overreach” that would irreparably harm the agency and markets it regulates.
The CFTC filing followed Wednesday’s rejection by the federal appeals court in Manhattan of Kalshi’s request to avoid being subjected to New York’s gambling laws, while it appeals U.S. District Judge Analisa Torres’ refusal on July 8 to issue an injunction against the state.
Kalshi had preemptively sued New York last October to block enforcement.
WAGERS ON THE SUPER BOWL, ‘BIG BROTHER’
According to New York’s petition, Kalshi’s prediction markets are gambling because people can wager on events whose outcomes they don’t control, such as who will win the Super Bowl or the reality TV show “Big Brother.”
New York also objected to Kalshi letting 18- to 20-year-olds use its platform, despite a minimum age of 21 under state law for mobile sports betting.
“Kalshi has chosen to ignore New York’s gaming laws, which exist to protect consumers, prevent problematic gambling, deliver funding for critical public services, and ensure that every company plays by the same rules,” New York Governor Kathy Hochul said in a statement. “This choice has consequences.”
At least four states — Massachusetts, Michigan, Nevada and Washington — have won court orders restricting Kalshi’s activities.
In refusing to stop potential New York enforcement activity, Torres found the state’s interests in preventing gambling addiction, preserving the integrity of sports, and avoiding a proliferation of unregulated contracts “heavily” outweighed Kalshi’s interests in ensuring the primacy of federal law and avoiding “intractable” technology issues for customers.
New York’s lawsuit seeks a halt to Kalshi’s alleged unlawful conduct, the forfeiture of illegal gains, civil fines equal to triple those gains, and restitution to customers.
(Reporting by Jonathan Stempel in New York; Editing by Lincoln Feast.)
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