The state of New York has sued Kalshi, alleging the prediction market firm is an illegal gambling operation.
The lawsuit aims to stop the company from operating in the Empire State, pay restitution to residents who used the platform, forfeit any profits earned in New York, and pay fines three times the profits made in the state.
In the suit, New York Attorney General Letitia James claims Kalshi put New York residents at risk. Also, it allowed 18-year-olds to use the platform, while the state’s legal age to gamble is 21.
“New York’s gambling laws protect children from underage betting and help combat gambling addiction,” James (D) said. “No matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple.”
Legal Back-And-Forth
Kalshi is based in New York. But the New York State Gaming Commission has not licensed it “in any capacity,” according to the lawsuit. Last fall, the commission ordered Kalshi to end what it termed as an “unlicensed mobile sports wagering platform.”
In turn, Kalshi sued to stop the enforcement of a cease-and-desist letter.
Prediction market firms argue that their offerings are different from traditional sports betting and more akin to financial markets. The Commodity Futures Trading Commission (CFTC) solely regulates prediction market firms, they contend. Kalshi reaffirmed that assertion to CBS News after New York announced the lawsuit.
“It’s sad to see this type of political theater from the leadership in our own state,” Kalshi spokeswoman Elisabeth Diana said. “States can’t just shut down a federally licensed exchange. 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.”
Kalshi and other prediction markets have faced off in court over the last year as both plaintiffs and defendants. It has won a federal appeals court ruling against New Jersey and lost a case in Maryland. In May, Kentucky residents filed a class-action lawsuit against Kalshi, claiming the company is operating illegally in the state. The Ohio Casino Control Commission levied a $5 million fine against the company in April for offering sports contracts.
The CFTC has sought to reassert its regulatory control over the industry. The commission sued New York in April. It also filed legal actions against Arizona, Connecticut, and Illinois in the same month.
Insider-Trading Concerns
In related news, concerns have also grown about insider trading on prediction platforms. This followed several well-publicized cases involving trading on geopolitical events, such as a significant win by a user on the capture and arrest of Venezuelan leader Nicolás Maduro.
A group of insiders also won big after betting on Iranian Supreme Leader Ayatollah Ali Khamenei’s removal from power before the end of February. President Donald Trump’s administration has promised to punish those engaging in insider trading.
Truth API
Some are concerned with a new Truth Social service that allows users to pay to view the president’s posts on the platform early. The plan, which launched Saturday, is geared toward Wall Street financial firms and costs up to $100,000 per month.
“Truth API” alerts users to the president’s “most market-moving” posts. Trump Media and Technology Group owns the social media platform. The president owns about 41% of the company.
Truth Social promises “a direct, licensed, real-time feed of the platform’s most market-moving truths.” Truth API will allow some users to read key government and economic information before others, allowing them to use some of that on prediction markets and potentially trade using inside information.
Lawmaker criticisms
Truth API has drawn criticism from Democratic Sens. Elizabeth Warren and Adam Schiff, who have asked the Securities and Exchange Commission to investigate.
Both argued that the subscription plan “appears to be an outrageous abuse of the president’s office for his personal benefit that undermines everyday investors and the integrity of our markets, while enriching Wall Street and other wealthy insiders.”
The service not only features Trump but several other “influential accounts,” according to Truth. The company claims that market-moving information already can be found on the platform and that Truth API streamlines that for those in the financial industry.
“Markets already move on Truth Social posts,” interim CEO Kevin McGurn said in announcing the service. “Truth API delivers a direct, licensed, real-time feed of the platform’s most market-moving Truths while advancing our strategy to monetize proprietary assets through a high-margin, recurring revenue stream.”