New York sues Kalshi over alleged illegal gambling operation

New York has sued Kalshi, alleging that the prediction market platform is operating an unlicensed gambling business through event contracts tied to sports, elections and other outcomes. For PSPs and banks, the immediate issue is not the label Kalshi uses, but the familiar one underneath it: whether state gambling rules can be enforced against federally regulated event markets.

1. The lawsuit seeks to stop Kalshi’s alleged gambling operation in New York, force the company to forfeit illegal gains, pay restitution to users, and pay civil penalties equal to three times those gains.
2. Attorney General Letitia James said in Friday’s statement: “No matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple. We are taking them to court to uphold our laws and protect New Yorkers.”
3. The case comes after the New York State Gaming Commission issued Kalshi a cease-and-desist order in October 2025. Kalshi then sued the regulator in federal court, but a judge denied its request for a preliminary injunction in July, and an appeals court later rejected its bid to block enforcement while the appeal proceeds.
4. The dispute is now colliding with federal oversight. Just before New York filed suit, the Commodity Futures Trading Commission (CFTC) filed an emergency motion seeking to block New York’s enforcement efforts, arguing that the state was interfering with the agency’s exclusive authority under the Commodity Exchange Act to regulate designated contract markets like Kalshi.
5. The CFTC said it has taken similar positions in disputes involving at least nine states, warning that if states are allowed to prohibit event contracts listed by federally regulated exchanges, the result would be conflicting state rules and a mess for federal commodities regulation.

Kalshi’s rival, Polymarket, has also faced regulatory scrutiny, with several countries restricting or investigating its operations over gambling and licensing concerns. Kalshi began expanding into blockchain-based infrastructure in December 2025, launching tokenized prediction markets on Solana and later adding support for multiple blockchain networks. According to analytics firm Chainalysis, blockchain-based prediction markets processed about $20 billion in trading tied to the 2026 FIFA World Cup, with more than 400,000 wallets participating.