New York Sues Kalshi for Up to $36 Billion, Alleges Illegal Gambling Operation

New York Attorney General Letitia James has sued prediction market operator Kalshi, seeking to block the company from operating in the state without a gambling license and to recover penalties and gains that could total as much as $36 billion. The lawsuit, filed alongside Governor Kathy Hochul’s office, accuses Kalshi of running an illegal, unlicensed gambling platform by letting users wager on sports, elections and cultural events.

The filing includes eight causes of action, ranging from violations of the New York State Constitution’s gambling ban to bookmaking, possession of gambling records, unlicensed mobile sports wagering and the federal Wire Act. New York is asking the court to force Kalshi to forfeit any illegal gains, pay restitution to affected users, and pay fines equal to three times the revenue it generated through gambling activity in the state. The state is also seeking $100,000 for every alleged attempt to offer sports wagering to a New York customer, which is what pushes the potential total toward $36 billion.

Kalshi Pushes Back, Moves for Federal Court

Kalshi wasted little time responding. The company moved to shift the case to federal court in Manhattan, arguing it operates as a federally regulated futures exchange rather than a gambling business, and New York is expected to fight that venue change. “States can’t just shut down a federally licensed exchange,” Kalshi spokeswoman Elisabeth Diana said, calling the lawsuit “political theater” that would ultimately just push New York customers to offshore platforms.

The core legal question is whether Kalshi’s event contracts count as financial products regulated by the Commodity Futures Trading Commission or as gambling products that fall under state licensing, taxation and consumer-protection law. The CFTC, now led by Trump appointee Michael Selig, has already sued New York over its prediction-market crackdown and reiterated its position publicly after the new suit was filed. “Rather than seek reasoned answers from the courts, Letitia James and New York seek to force an unprecedented sudden shutdown of prediction markets nationwide,” Selig posted on social media. “The CFTC has already sued to stop this and will continue to defend its jurisdiction.”

Underage Access and a Rejected Tax Deal

New York’s investigation also found that Kalshi allows users as young as 18 to participate, while the state requires mobile sports bettors to be at least 21. “New York’s gambling laws protect children from underage betting and help combat gambling addiction,” James said in a statement. “No 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.”

Before the lawsuit was filed, Kalshi reportedly spent weeks negotiating with state officials and proposed a regulatory framework covering self-exclusion tools, advertising limits and other consumer protections. The company also floated a tax arrangement modeled on North Carolina’s approach, where prediction-market trades face a 6% tax compared with 23% on traditional sports betting revenue — a deal that, according to a person familiar with the matter, could have generated an estimated $10 billion for New York over five years. State officials rejected the proposal in favor of the lawsuit.

Governor Hochul framed the legal action as a matter of fairness across the industry. “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,” Hochul said. “This choice has consequences, and working closely with Attorney General James, New York is taking action to stop this illegal behavior and bring Kalshi into compliance, because no company is above the law.”

Part of a Broader Pattern

This is not New York’s first swing at the prediction-market industry. The state previously sued Coinbase and Gemini over similar allegations that their event-contract platforms amounted to illegal gambling, and the Gaming Commission issued Kalshi a cease-and-desist order in 2025. Kalshi has largely lost those earlier fights — a federal judge denied the company’s request for a preliminary injunction against the state in early July and refused to grant protection pending appeal later that month.

Kalshi launched in 2021 and expanded into sports-related event contracts in 2025, marketing itself under the tagline “Kalshi: Legal in all 50 states.” Online sports betting is currently legal and licensed in 39 states, a patchwork that has left prediction markets operating in a legal gray zone many states are now moving to close. For bettors and industry watchers tracking where regulated prediction markets stand against traditional sportsbooks, cases like this one will likely shape how platforms such as Kalshi and its competitors are allowed to operate going forward, particularly in states with well-established regulated betting markets like New York.