New York officials have sued prediction market platform Kalshi, calling it an “illegal, unlicensed gambling operation” as the state seeks to halt its operations and force the company to forfeit its profits.

With its lawsuit on Friday, New York joins a growing number of states filing cases against Kalshi and other companies in a dispute with United States President Donald Trump’s administration over who regulates the fast-growing prediction market. Kalshi and other platforms argue they are federally licensed and regulated, and states have no authority to govern them.

In a petition filed in a state court in Manhattan, Attorney General Letitia James said Kalshi failed to obtain a New York State Gaming Commission licence to operate its platform, where people trade based on the predicted outcomes of sport, elections and other events.

The attorney general said such platforms can encourage problem gambling, including by people under age 21, and endanger people’s financial, emotional and physical health.

James’s office is requesting that Kalshi be ordered to forfeit all illegal gains, pay restitution to consumers who were harmed and pay fines equal to three times the company’s gains.

Kalshi had been in negotiations with New York officials in recent weeks over tax and consumer protection issues.

James filed similar petitions in April against two other prediction market operators – Coinbase Financial Markets and Gemini Titan – saying all three companies’ so-called event contracts were “quintessentially” gambling.

“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.”

CFTC challenges

Prediction markets such as Kalshi and Polymarket have soared in popularity since the 2024 US presidential election, when they fared better than pollsters in predicting Republican Donald Trump’s victory over Democrat Kamala Harris.

The US Commodity Futures Trading Commission (CFTC) has claimed exclusive jurisdiction to regulate transactions offered in the prediction market and challenged regulatory activity in at least nine states, including New York, which it sued in April.

States counter that the vast majority of the business on prediction market platforms is sport betting, which they are empowered to regulate, and that is completely different from the commodities and futures contracts that the commission regulates.

CFTC filed an “emergency” motion in the federal court late on Thursday night to stop New York from subjecting Kalshi to state gambling laws, calling it “overreach” that would irreparably harm the agency and markets it regulates.

Kalshi is based in New York. The company expected James’s lawsuit, calling it “political theater from the leadership in our own state,” and sought to move it to Manhattan federal court eight hours after the attorney general filed it.

New York “seeks to place itself in the position of a nationwide derivatives regulator,” Kalshi said. “Through this action — which seeks to shut Kalshi down nationwide — New York seeks to fundamentally subvert the exclusive jurisdiction of the CFTC.”

On Wednesday, the federal appeals court in Manhattan rejected Kalshi’s request to avoid possible enforcement activity, while it appeals US District Judge Analisa Torres’s refusal on July 8 to issue an injunction against the state. Kalshi pre-emptively sued New York last October to block such activity.

Prediction market wagers

According to New York’s petition, Kalshi’s prediction markets are gambling because people can wager on events whose outcomes they don’t control, such as who will win the Super Bowl or the reality TV show “Big Brother”.

New York also objected to Kalshi letting 18- to 20-year-olds use its platform, despite a minimum age of 21 under state law for mobile sport betting.

“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 Governor Kathy Hochul said in a statement. “This choice has consequences.”

At least four states — Massachusetts, Michigan, Nevada and Washington — have won court orders restricting Kalshi’s activities.

In refusing to stop potential New York enforcement activity, Torres found the state’s interests in preventing gambling addiction, preserving the integrity of sport, and avoiding a proliferation of unregulated contracts “heavily” outweighed Kalshi’s interests in ensuring the primacy of federal law and avoiding “intractable” technology issues for customers.

On Monday, a federal judge temporarily blocked Minnesota’s first-in-the-nation law banning prediction markets just days before it was to take effect — dealing a setback for states trying to outlaw or regulate the platforms.