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The state of New York sued Kalshi on Friday, accusing the prediction market of running an illegal gambling operation.
The lawsuit alleges the company is operating a gambling business in “flagrant disregard” of Empire State laws, failing to get a license from the state gaming commission and skirting related taxes.
It also argues the platform runs afoul of a state law barring sports betting for people under 21 years old, with Kalshi allowing users 18 and up.
“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 Gov. Kathy Hochul (D) said in a statement.
“This choice has consequences, and working closely with Attorney General [Letitia] James, New York is taking action to stop this illegal behavior and bring Kalshi into compliance, because no company is above the law,” she added.
The state is seeking a court order barring the platform from operating in New York without a gaming license and requiring the company to pay restitution to users and forfeit any gains.
It is also asking the court to require Kalshi to pay a fine equivalent to three times its profits, in addition to penalties of $100,000 for “each offer or attempt to offer” unlicensed sports betting.
“No matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple,” New York Attorney General Letitia James (D) said in a statement.
Elisabeth Diana, Kalshi’s head of communications, knocked the move as “political theater.”
“States can’t just shut down a federally licensed exchange,” she said in a statement. “This would also hurt New Yorkers, who would be driven offshore. We love New York, we love New Yorkers, and New Yorkers love our product.”
Prediction markets, which have exploded in popularity in recent years, argue they are distinct from traditional gambling and are federally regulated by the Commodity Futures Trading Commission (CFTC).
Since taking the reins at the agency, CFTC Chair Michael Selig has also embraced this argument and vowed to challenge any state efforts to regulate the platforms.
Selig sued New York in April, after the state filed suit against Coinbase and Gemini, similarly accusing the cryptocurrency firms of running unlicensed gambling operations with their prediction market sites.
The CFTC asked the court for a temporary restraining order Thursday blocking the state’s “increasingly aggressive attempts to assert jurisdiction” over prediction markets, noting officials could soon take action against Kalshi.
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