State claims prediction market operator is disguising illegal gambling as financial trading in lawsuit that could test the boundary between federal derivatives regulation and state gaming laws.<\/p>\n
New York has launched a legal challenge against prediction market operator Kalshi, arguing that its platform amounts to an unlicensed gambling business<\/a> and setting the stage for a courtroom battle over whether event-based contracts should be regulated as financial products or treated as illegal betting under state law.<\/p>\n In a petition filed in the Supreme Court of the State of New York on 31 July and seen by ICLG News, Attorney General Letitia James alleges that Kalshi has been operating an illegal gambling platform by allowing users to wager on sporting events, elections and cultural events without obtaining the licences required under New York law. She is therefore asking the court for an injunction preventing the company from operating in New York, together with restitution, disgorgement of profits and substantial financial penalties.<\/p>\n Derivatives or gambling?<\/p>\n Founded in 2021, Kalshi operates what is known as a prediction market, allowing users to speculate on the outcome of future events ranging from sporting fixtures and elections to reality TV programmes and economic indicators. Rather than placing a bet with a bookmaker, users buy what Kalshi calls an event contract. It works like this: if a user thinks, for example, that Arsenal will beat Liverpool on Saturday, they can buy a contract linked to that outcome for, say, 63 cents, reflecting the market\u2019s view of how likely Arsenal are to win. If Arsenal do win, the contract pays out $1. If they do not, the contract expires worthless and the purchaser loses the 63 cents paid for it. The result is much the same as placing a bet, although Kalshi argues that these are federally regulated derivatives<\/a> rather than gambling products.<\/p>\n Whether those instruments are genuinely financial contracts or simply bets by another name is what the litigation is all about. New York contends that the company has merely repackaged sport betting using the language of financial markets.<\/p>\n The case is just one front in a widening nationwide battle over prediction markets. Kalshi has challenged enforcement action taken by regulators in New Jersey, Tennessee, Ohio and other states, arguing that, as a federally regulated derivatives exchange overseen by the Commodity Futures Trading Commission (CFTC), it falls outside state gambling regulation. The resulting litigation has already produced differing outcomes. Federal courts in Tennessee and New Jersey have granted Kalshi interim relief, while a federal court in Ohio reached the opposite conclusion, finding that Kalshi\u2019s sports event contracts were unlikely to fall within the exclusive scope of federal derivatives law. Appeals are now pending in several circuits.<\/p>\n This patchwork of conflicting decisions has yet to provide a definitive answer to where federal derivatives regulation ends and state gambling law begins, leaving nobody any the wiser. But as far as New York is concerned, Governor Kathy Hochul is clear: \u201cKalshi has chosen to ignore New York\u2019s 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. This choice has consequences.\u201d<\/p>\n Attorney General James added: \u201cNo matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple. By ignoring our laws, Kalshi is running an illegal operation and harming New Yorkers in the process.\u201d<\/p>\n \u2018Each contract is a bet\u2019<\/p>\n The petition takes direct aim at Kalshi\u2019s terminology, asserting that \u201ceach contract is a bet\u201d and accusing the company of offering what is \u201cquintessentially wagering under the guise of \u2018event contracts\u2019 on a \u2018prediction market\u2019\u201d.<\/p>\n New York further alleges that Kalshi permits users aged between 18 and 20 to participate even though state law requires punters to be at least 21, has offered wagering on New York college teams despite restrictions applying to licensed operators, and has provided products closely resembling those available from licensed bookmakers, including bets based on winning margins and parlays \u2013 the US equivalent of the British \u2018accumulator\u2019. The petition also alleges that the company has advertised directly to New York consumers while operating without any licence from the New York State Gaming Commission.<\/p>\n The state contends that Kalshi\u2019s activities violate the New York Constitution, state gambling legislation, the Racing Law and the federal Wire Act. It is seeking a permanent injunction preventing the company from operating an unlicensed gambling business in New York, together with an order requiring it to account for all bets placed through the platform, make restitution to consumers, disgorge its profits and pay treble penalties under New York\u2019s Penal Law. It is also seeking statutory fines of $100,000 for each unauthorised offer of sports wagering.<\/p>\n Parallel proceedings<\/p>\n These state-court proceedings will run alongside separate federal proceedings brought by Kalshi against the New York State Gaming Commission. After the regulator issued a cease-and-desist notice in October 2025, Kalshi sued in the Southern District of New York, arguing that its event contracts fall within the exclusive jurisdiction of the CFTC rather than state gambling regulators. The district court refused to grant a preliminary injunction in July and Kalshi has appealed that ruling to the Second Circuit.<\/p>\n Should Attorney General James win the day, the implications could extend far beyond New York\u2019s borders. Combined trading volume across Kalshi and rival prediction market operator Polymarket exceeded $40 billion in 2025, with Kalshi accounting for almost $23 billion, according to KPMG. If New York succeeds in establishing that sport-related event contracts amount to illegal gambling, the judgment will provide a powerful precedent for other states already challenging prediction markets and could reshape how the industry operates across the United States.<\/p>\n","protected":false},"excerpt":{"rendered":"State claims prediction market operator is disguising illegal gambling as financial trading in lawsuit that could test the…\n","protected":false},"author":2,"featured_media":313273,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6],"tags":[2303,118392,81576,13034,9,11,10,49,1467,51,50],"class_list":["post-313272","post","type-post","status-publish","format-standard","has-post-thumbnail","category-new-york","tag-attorney-general-letitia-james","tag-derivatives-regulation","tag-illegal-gambling","tag-kalshi","tag-new-york","tag-new-york-headlines","tag-new-york-news","tag-new-york-state","tag-new-york-state-gaming-commission","tag-new-york-state-headlines","tag-new-york-state-news"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/posts\/313272","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/comments?post=313272"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/posts\/313272\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/media\/313273"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/media?parent=313272"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/categories?post=313272"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/tags?post=313272"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}