Kalshi Sued by New York AG Over Alleged Illegal Betting Operation

New York Attorney General Letitia James and Gov. Kathy Hochul announced Thursday that the state has filed a lawsuit against Kalshi, accusing the prediction market company of running an unlicensed betting business. 

The suit follows an investigation by the Office of the Attorney General. It found that Kalshi's platform meets the legal definition of gambling under state law because it allows users to place bets on uncertain outcomes beyond their control, including sporting events. 

Attorney General James and Gov. Hochul rejected Kalshi's claim that calling the wagers "trades" placed them outside New York gambling law. The complaint alleges that Kalshi operated without a state gaming license, unlike regulated New York sports betting operators and casinos that pay taxes on their operations. The state is also seeking $36 billion in compensatory damages. 

Officials noted that this lost revenue would otherwise support public schools and problem gambling treatment programs. The lawsuit also raises concerns about underage access, pointing out that Kalshi's platform is open to users as young as 18, three years below New York's legal betting age of 21. 

The state is asking a court to bar Kalshi from operating without a license, force the company to forfeit any profits earned through its alleged illegal activity, and require it to pay restitution to affected users. 

Kalshi has since moved the case to federal court, where it will be heard by one of two judges already handling related disputes between the company and New York regulators. That transfer is expected to delay the state's enforcement push by several weeks, though New York will likely request that the case be sent back to state court.

Federal judge sides with New York in earlier Kalshi dispute

This is not the first legal setback for Kalshi in New York. Earlier in the month, US District Judge Analisa Torres denied the company's request for a preliminary injunction that would have blocked the state from enforcing its gambling laws against Kalshi's sports-related contracts. 

Kalshi had argued that the federal Commodity Exchange Act gave the Commodity Futures Trading Commission (CFTC) sole authority over its products, leaving no room for state regulation. Torres disagreed, ruling that the federal law did not override New York's gambling statutes as they applied to Kalshi's offerings. 

She found that the state's interest in curbing gambling addiction, protecting the integrity of sports, and preventing a flood of unregulated betting contracts outweighed Kalshi's arguments favoring federal primacy. Kalshi has appealed that ruling to the federal appeals court in Manhattan. 

The company first sued the New York State Gaming Commission last October after regulators ordered it to stop offering sports event contracts without a license. 

That fight is part of a broader clash between state gambling regulators and federal oversight of prediction market apps, with the CFTC separately suing New York and challenging comparable state actions in Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, Rhode Island, and Wisconsin.