Kalshi, a leading operator of prediction markets, suffered an important legal loss in New York on Tuesday.
Judge Analisa Torres of the Southern District of New York (SDNY) denied Kalshi’s request for a preliminary injunction. The decision clears state regulators to continue enforcing gambling regulations against sports event contracts offered by Kalshi and other prediction platforms.
Case details
Judge Torres said in denying Kalshi’s appeal for a preliminary injunction that New York’s gambling laws apply to sports event contracts and are not preempted by the Commodity Exchange Act, a federal law passed in 1936. That decision allows the case to progress to the motion-to-dismiss stage.
Kalshi had argued in KalshiEX LLC v. Williams that its sports event contracts were “swaps” traded in designated contract markets (DCMs) regulated by the Commodity Futures Trading Commission (CFTC). It also asked the court to invoke a temporary restraining order and preliminary injunction against New York gaming regulators.
New York Attorney General Letitia James, on behalf of state regulators, argued that federal law should be used to supersede state gaming enforcement. Judge Torres ultimately agreed with those sentiments in her ruling.
“The Court finds that New York gambling laws as applied to Kalshi’s sports-event contracts are not preempted by the CEA and Kalshi has not, therefore, made a clear or substantial showing that it is likely to succeed on the merits,” the judge said in her decision. “The scope of laws regulating gambling and lotteries is clearly a matter of predominantly state concern.”
Drawing the differences
Judge Torres recently presided over the SEC v. Ripple court case, which continued through Aug. 2025 even though a court decision was announced in 2023. The court ruled that publicly traded XRP tokens on exchanges are not classified as securities. Ripple paid a $125 million civil penalty and accepted a permanent injunction.
The court’s ruling against Kalshi only means that it will not receive preliminary relief. More litigation is expected beyond that.
Even still, sports betting attorney Daniel Wallach said in a post on X (Twitter) that the decision was a “Major, major loss for Kalshi in the financial capital of the US, with likely knock-on effects in other cases (especially Connecticut and other SDNY lawsuits).”
One of the key points raised in Torres’ decision was the scope of the CFTC’s exclusive authority to regulate prediction platforms as prescribed by the CEA. The judge claimed that power was “not without limits,” and that state regulators had the right to intervene in sports event contracts.
Torres also noted that federal laws do not require DCMs to offer the same contracts nationwide. That is relevant to the case since Kalshi argued that local regulation that varied state-by-state clashed with federal access rules.
The judge also said that complying with New York regulators tasked Kalshi with another requirement, but it did not clash with federal laws.
States claw back momentum
The recent decision took a chunk out of prediction platforms’ primary defense, which is they should only be regulated by the CFTC through the U.S. Constitution’s Supremacy Clause.
Prediction platforms and the CFTC have found themselves engaged in litigation in multiple states recently. They have largely been successful in getting state officials to stand down, although states have been increasingly willing to take their chances. The latest example of that came in New Jersey, where lawmakers advanced a bill to add a 9% tax to prediction market operators.
The Trade Handle Prediction Markets Take
The CFTC has been increasingly active in defending licensed prediction markets amid a sweep of state pushback. Losing the request for a temporary injunction in New York, one of America’s largest gaming and financial markets, means that Kalshi is fighting an uphill battle. AG James is also expected to file a civil enforcement action against Kalshi, seeking civil penalties and other punishments for operating sports event contracts without regulation.