New York Sues Kalshi for Up to $36 Billion in Gambling Crackdown

New York Attorney General Letitia James and Governor Kathy Hochul have sued prediction market operator Kalshi, accusing the company of running an "illegal, unlicensed gambling operation" and seeking penalties, forfeited gains, and restitution that could total as much as $36 billion — the most aggressive state action yet against the fast-growing prediction market industry.

The lawsuit, filed Friday in state court, asks for an order halting Kalshi's operations in New York, forfeiture of all illegal gains, restitution to harmed consumers, and fines equal to three times the revenue the company generated through gambling activity in the state. A separate demand of $100,000 for every alleged attempt to offer sports wagering to a New York customer is what pushes the potential total toward $36 billion, according to reporting on the filing.

What the eight-count complaint alleges

The filing lays out 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. Central to the state's case is the argument that Kalshi's event contracts — yes-or-no positions on sports outcomes, elections, and cultural events — meet the legal definition of gambling because users stake money on uncertain events they cannot control.

The complaint also alleges that Kalshi never obtained a license from the New York State Gaming Commission, allowing it to sidestep the taxes licensed casinos and sportsbooks pay. That revenue funds public schools, youth sports programs, and problem gambling prevention and treatment. Investigators further found that Kalshi accepts users as young as 18, while New York law 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."

Hochul framed the suit as a matter of equal rules 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," she said. "No company is above the law."

A federal-versus-state fight with billions at stake

Kalshi, which launched in 2021 and expanded into sports-related event contracts in 2025 under the tagline "Legal in all 50 states," argues it is a federally regulated futures exchange — a Designated Contract Market overseen by the Commodity Futures Trading Commission — not a gambling business. On these platforms users trade against one another rather than against a house, and the CFTC, under Trump appointee Michael Selig, has claimed exclusive jurisdiction. The agency has already sued to block New York's crackdown.

"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 X. "The CFTC has already sued to stop this and will continue to defend its jurisdiction."

Kalshi moved quickly to shift the case to federal court in Manhattan, a venue change New York is expected to fight. "It's sad to see this type of political theater from the leadership in our own state," company spokeswoman Elisabeth Diana said. "States can't just shut down a federally licensed exchange. This would also hurt New Yorkers, who would be driven offshore."

The confrontation escalated despite weeks of negotiations before the filing. Kalshi reportedly proposed a regulatory framework including self-exclusion tools, advertising limits, and other consumer protections, along with a tax arrangement modeled on North Carolina's — a 6 percent levy on prediction market trades versus 23 percent on traditional sports betting revenue — that one person familiar with the talks estimated could have generated $10 billion for New York over five years. State officials rejected the offer in favor of litigation.

Why addiction researchers are watching

The case lands in the middle of a national brawl. More than 20 federal lawsuits have been filed over whether prediction markets should be regulated as financial exchanges or as gambling businesses subject to state law. In April, Arizona Attorney General Kris Mayes filed criminal charges against Kalshi over election betting, and the federal government sued Arizona, Connecticut, and Illinois over their own regulatory efforts. On Monday, a federal judge temporarily blocked Minnesota's first-in-the-nation ban on prediction markets days before it was to take effect.

For the addiction treatment field, the jurisdictional question is not academic. Gambling researchers warn that prediction markets carry the same addictive mechanics as sportsbooks while operating outside the consumer protections states impose on licensed operators — including funding streams for treatment. Lia Nower, director of Rutgers University's Center for Gambling Studies, told The Guardian that unregulated platforms will likely have "an additive effect to the legal forms of gambling," contributing to rising rates of problem gambling in the years ahead.

That concern is driving parallel policy responses. Illinois recently became the first state to fold gambling disorder into its Substance Use Disorder Act, opening state-funded treatment to compulsive gamblers regardless of whether they have a co-occurring substance diagnosis — a measure this blog covered when Governor Pritzker signed it into law. In Congress, the bipartisan POINTS Act would create the first dedicated federal grant program for gambling addiction treatment through SAMHSA, addressing a workforce of only about 500 certified gambling counselors nationwide.

What comes next

New York has been here before. The state sued Coinbase and Gemini in April over similar event-contract allegations, and the Gaming Commission issued Kalshi a cease-and-desist order in 2025. Kalshi has lost the early rounds of those fights — a federal judge denied its request for a preliminary injunction against the state in early July and refused protection pending appeal later that month.

With online sports betting now legal in 39 states, the outcome in New York could set the terms for whether prediction markets absorb the same licensing, taxation, age-verification, and treatment-funding obligations as the sportsbooks they increasingly resemble — or continue operating nationwide under federal commodities law alone.

Anyone struggling with gambling can reach the National Problem Gambling Helpline at 1-800-GAMBLER, available 24 hours a day.