New York State Attorney General Letitia James has filed a lawsuit against Kalshi, a federally regulated prediction market operator, accusing the company of running an illegal gambling business within the state.
The lawsuit, filed in Manhattan state court, alleges that Kalshi has offered gambling products to New Yorkers without the required state license. According to the complaint, this exposes consumers, including those between 18 and 20 years old, to financial risks while allowing Kalshi to bypass taxes and regulatory obligations imposed on licensed entities like sportsbooks.
Kalshi has countered that as a federally regulated exchange overseen by the Commodity Futures Trading Commission, states cannot shut down its markets. A spokeswoman for Kalshi stated that such actions would harm New Yorkers by driving them to offshore platforms. However, Governor Kathy Hochul and Attorney General James maintain that Kalshi has violated New York's gaming laws by failing to obtain a license and circumventing consumer protection rules and taxes applicable to casinos and mobile sportsbooks.
This legal challenge follows a recent setback for Kalshi in New York, where a state judge ruled that the company could not prevent state gaming regulators from overseeing its sports prediction markets. Kalshi has had success in other jurisdictions arguing that federal law preempts state gambling regulations.
The state's complaint asserts that Kalshi's prediction markets meet the legal definition of gambling because the outcomes of the events users bet on are uncertain and outside the control of the bettor, or hinge on chance.
The lawsuit emerges amidst an escalating rivalry between Kalshi and its chief competitor, Polymarket. Reports indicate a contentious relationship between the two firms, with accusations of corporate espionage and personal attacks being exchanged. This legal action against Kalshi adds another layer to these ongoing disputes. Kalshi has expanded its market offerings beyond elections to include sports, entertainment, and weather, which has reportedly increased its trading volume above that of Polymarket.