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Legal challenges mounted Friday for Kalshi when New York sued it for allegedly running an "illegal gambling operation" in the state and sought severe financial penalties against the prediction market company.
Letitia James, the attorney general of New York, alleged that Kalshi's offerings are "quintessentially gambling" and that the prediction market exposed New Yorkers, including those under 21, to gambling addiction without adequate safeguards.
Kalshi and its closest competitor, Polymarket, face at least 20 lawsuits from state regulators, tribes and individuals. They have long insisted that their service constitutes commodities trading, not gambling. The Donald Trump administration has defended that position, arguing that regulation of prediction markets falls under the jurisdiction of the Commodity Futures Trading Commission.
A Kalshi spokesperson, in a statement, referred to the lawsuit as a type of "political theater."
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"States can't just shut down a federally licensed exchange," the statement read. "This would also just hurt New Yorkers, who would be driven offshore. We love New York, we love New Yorkers, and New Yorkers love our product."
James, in the legal filing, petitioned the court to permanently prohibit Kalshi from operating in the state, where it's currently headquartered, unless the company obtains a gaming license. In April, New York sued prediction markets Coinbase and Gemini Titan based on the same gambling allegation.
"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."
Prediction market companies allow users to bet on the yes/no outcome of events, including sports.
The New York filing requests heavy monetary penalties for Kalshi, with a minimum estimate of $36 billion pending a full accounting. It would include full restitution to its customers, "three times" the amount of the company's gain from illegal activities and $100,000 for each attempt to offer unlicensed sports wagering in the state.
The state's lawsuit comes after Kalshi suffered consecutive federal court losses, with a federal judge and an appeals court denying its motions to pause an earlier ruling that, despite federal regulation, the state can enforce its gambling laws on Kalshi's sports offerings as the case continues.
The company had argued that it comes under the "exclusive jurisdiction" of the CFTC, which tried to get ahead of New York's legal action by filing a federal lawsuit Thursday to prevent the state's "aggressive attempts" to regulate services that fall under CFTC jurisdiction.
Allowing New York to enforce its gambling laws would "bring entire federally regulated markets to the brink of destruction," the federal regulator wrote in Thursday's filing.
Similar disputes have erupted around the country in recent months.
On Monday, the Nevada Gaming Control Board announced an agreement with Kalshi to force the company to implement geolocation technology to block trades from people inside the state.
On Wednesday in Wisconsin, a judge denied the CFTC a temporary injunction, ruling that the federal agency failed to show that it is likely to prevail on the merits and concluding that the state may enforce its gambling laws against prediction markets.
In other rulings, states have also hit roadblocks as judges across the country, at the state and federal levels, dissect the legal nuances behind who gets to regulate prediction markets.
On Monday, a federal judge temporarily blocked a Minnesota state law banning prediction markets in the state starting Saturday. The ban had faced legal resistance from companies such as Kalshi and Polymarket, as well as from the CFTC, which sued the state and requested a preliminary injunction.
The Sixth Circuit Court of Appeals heard arguments Thursday in cases involving Ohio and Tennessee. Courts issued conflicting rulings previously, with Tennessee finding in favor of the prediction markets and an Ohio judge ruling in favor of the state.
ESPN's David Purdum contributed to this report.
