The New York attorney general filed a lawsuit against Kalshi and its prediction markets on Friday, claiming the platform violated the state’s gambling laws.
AG Letitia James said that Kalshi failed to obtain the necessary licensing from the New York State Gaming Commission (NYSGC) to operate its platform within state lines. That’s despite Kalshi and other prediction platforms’ insistence that they do not conduct gambling business.
New York wants to regulate prediction markets
This is not James and New York’s first time butting heads with prediction operators.
The AG filed similar appeals against Coinbase Financial Markets and Gemini Titan in April. She also issued several consumer and industry warnings about the potential perils of gambling and encouraged prediction operators to procure NYSGC licensing.
“New York’s gambling laws protect children from underage betting and help combat gambling addiction,” said Attorney General James. “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. We are taking them to court to uphold our laws and protect New Yorkers.”
Kalshi — America’s largest prediction platform — allows customers to buy and sell contracts in a litany of markets. Traders can find options for marquee events like the Super Bowl, or mundane everyday outcomes like the local temperature.
Prediction markets are federally regulated by the Commodity Futures Trading Commission (CFTC). That designation has empowered operators to set up shop in states across the country without receiving local licensing under the authority of the U.S. Constitution’s Supremacy Clause, which says that federal law overrules conflicting state laws.
“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,” New York Gov. Kathy Hochul (D) 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.”
What’s the big deal?
The new lawsuit claims that Kalshi’s prediction markets fit the legal definition of gambling because the outcomes of events for which they offer markets are outside of consumers’ control, making them a game of chance.
Differentiating between games of skill and games of chance is critical in law. Games of skill often escape the regulations for gambling companies and operations, while games of chance must meet the outlined standards.
New York officials also took issue with Kalshi allowing users aged 18-20 on its platform, despite the state-imposed 21-year minimum gambling age.
“It’s sad to see this type of political theater from the leadership in our own state,” New York-based Kalshi said in a statement. “States can’t just shut down a federally licensed exchange.”
Less than one hour before New York filed its lawsuit, the CFTC filed an emergency motion in a Manhattan federal court to stop AG James’ “overreach[ing]” effort.
Kalshi also had its request to avoid the regulation of New York’s gambling laws denied by a federal appeals court on Wednesday. U.S. District Judge Analisa Torres also did not provide an injunction against the state, which Kalshi had requested.
The Trade Handle Prediction Markets Take
New York’s lawsuit hopes to stop Kalshi’s unlicensed operations, force the platform to return all illegal gains, pay civil fines equal to triple the illegally obtained amount, and pay restitution to customers. The results of similar attempts nationwide suggest it will struggle to get any of that, especially with the CFTC showing a propensity to get more hands-on with supporting operators of prediction markets. That said, at least four states have achieved partial restrictions of Kalshi’s activities in court.