The State's Complaint
In a lawsuit filed Friday, July 31, 2026, in state court in Manhattan, the state of New York accused Kalshi of running an "illegal gambling operation." The complaint says Kalshi has been accepting bets like a gambling business in violation of New York's constitution and statutes because it has not obtained the registration the New York State Gaming Commission requires.
"No matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple," Attorney General Letitia James said in a statement announcing the suit. "By ignoring our laws, Kalshi is running an illegal operation and harming New Yorkers in the process."
Governor Kathy Hochul said in the same statement that the lawsuit is intended to halt the allegedly unlawful activity and force Kalshi to follow state law.
The complaint asks for a permanent injunction against the conduct. It also asks the court to order restitution for every user who traded on the service, impose a $100,000 fine for every sports-wagering offer, and add a penalty equal to triple the revenue Kalshi obtained through the alleged violations.
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Kalshi's Response
Kalshi, headquartered in New York City, said it was disappointed by the state's decision. "It's sad to see this type of political theater from the leadership in our own state. States can't just shut down a federally licensed exchange… We love New York, we love New Yorkers, and New Yorkers love our product," a Kalshi spokesperson said.
The company had already gone to court in October, after the New York State Gaming Commission sent it a cease-and-desist letter. In that earlier case, Kalshi sued the state. Earlier this month, a Manhattan federal judge rejected the company's request for a temporary restraining order and preliminary injunction against the commission, and the same judge refused to stop enforcement during the appeal.
The Bigger Fight Over Prediction Markets
Kalshi's dispute with New York is part of a national battle over who gets to regulate prediction markets. Trading volume on those platforms has climbed quickly as sports-related event contracts draw retail customers.
Kalshi, rival platforms, and the CFTC argue that every event contract qualifies as a swap and therefore falls under the commission's exclusive jurisdiction. States counter that sports-related contracts are really just sports betting, which they already regulate.
The CFTC sought a temporary restraining order to block New York's enforcement action just before the state announced its lawsuit. The commission had already sued New York in April, asking a court to stop the state from enforcing its laws against CFTC-registered platforms. New York's complaint focuses on Kalshi's sports contracts, but it also contends that contracts tied to elections, culture, and other non-sport categories violate state law.
On Monday, 44 state attorneys general sent a letter to the CFTC arguing that the agency has no jurisdiction to regulate sports-related event contracts. The letter came during the public comment period for the CFTC's first proposed rules on prediction markets. The state and federal conflict over these contracts remains unresolved.
Background
New York's lawsuit says the company must comply with state gambling registration requirements regardless of its claim that it is a federally licensed exchange. The case is one of several testing how far federal commodities law reaches into consumer-facing betting markets. With sports contracts driving much of the growth, the outcome could determine whether state regulators or the CFTC controls this rapidly expanding part of the industry.
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