CFTC uses emergency authority to allow Kalshi to continue operating in New York
The Commodity Futures Trading Commission (CFTC) has ordered prediction market operator Kalshi to continue operating in New York despite ongoing state legal action.
In a statement, CFTC Chairman Michael Selig said the agency had used its emergency authority to assert federal jurisdiction over prediction markets, stating that New York had no business regulating what he described as “interstate financial markets.”
“New York intends to make event contract derivatives waste away under its iron curtain of state gaming laws before the courts get the chance to issue final rulings,” noted the CFTC Chairman. “Congress did not intend for derivatives exchanges to be regulated under a patchwork of state gaming laws. These are financial exchanges that offer financial instruments and operate across state lines,” indicated the official.
New York Attorney General Letitia James sued Kalshi last month, alleging that the platform operates an illegal gambling business. The AG’s office sought a temporary restraining order to stop Kalshi from operating in the state, along with restitution and civil penalties that could total at least US$36 billion.
“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. We are taking them to court to uphold our laws and protect New Yorkers.”
The lawsuit alleges that prediction markets fit the legal definition of gambling and that Kalshi exposed New York residents, including people under the state’s legal gambling age of 21, to financial risks, and that the company failed to pay applicable taxes.
According to the CFTC, Kalshi had contacted the agency the day after the lawsuit, warning the CFTC of a “market emergency” if the state’s lawsuit were to be successful. The CFTC said it had “exercised its emergency authority” in response to Kalshi’s plea.
The CFTC has also previously sued New York earlier in the year, after James had joined 37 other attorneys general urging a Massachusetts court to uphold a preliminary injunction against Kalshi. Illinois, Arizona and Connecticut are a handful of other states the CFTC has sued.
Charlotte Capewell brings her passion for storytelling and expertise in writing, researching, and the gambling industry to every article she writes. Her specialties include the US gambling industry, regulator legislation, igaming, and more.
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The Backstory
Federal-state clash moves from theory to emergency action
The CFTC’s decision to invoke emergency authority in New York marks a sharper phase in a regulatory fight that has been building across the U.S. prediction market industry. Until now, the dispute had largely moved through lawsuits, cease-and-desist orders, injunction requests and state tax measures. The latest step puts the federal commodities regulator directly against New York’s attempt to force Kalshi out of the state while litigation continues.
At the center is a basic but consequential question: Are event contracts financial derivatives subject primarily to federal oversight, or are they wagers that states can regulate as gambling? Kalshi and the CFTC argue that the products are exchange-traded instruments governed by federal commodities law. New York, other states and critics in Congress say the sports and public-event contracts increasingly resemble online betting and should not be allowed to bypass state gambling rules.
That disagreement has become more urgent as prediction markets expand from political and economic outcomes into sports. The shift has raised the stakes for state gaming regulators, licensed sportsbooks, tribal operators and public health advocates who say the federal framework was not designed to replace gambling regulation. For Kalshi, the New York case threatens access to one of the country’s largest markets and could influence how other courts assess state power over federally registered exchanges.
New York built its case around gambling law
The emergency order followed New York’s lawsuit accusing Kalshi of illegal gambling operations, a case brought by Gov. Kathy Hochul and Attorney General Letitia James. The state alleged Kalshi was operating without a New York State Gaming Commission license, offering products that meet the state’s legal definition of gambling and failing to pay applicable gambling taxes.
New York’s complaint focused heavily on sports contracts and consumer protection. State officials said Kalshi was available to users aged 18 to 20, while New York requires mobile sports betting customers to be at least 21. They argued that distinction exposed younger users to gambling-related harm and undermined rules adopted after the legalization of online sports betting.
The state also sought significant financial remedies. Its lawsuit asked for an order stopping Kalshi from operating in New York, restitution to consumers and penalties tied to the company’s profit. Reporting on the filing noted claims that potential compensation and penalties could reach at least $36 billion, underscoring the scale of risk for Kalshi if New York’s theory prevails.
The lawsuit did not arise in isolation. New York’s gaming regulator had issued a cease-and-desist order to Kalshi in October 2025, and a federal judge later refused to give the company the preliminary injunction it sought against enforcement. That denial gave the state momentum before the CFTC intervened with its emergency action.
A court ruling gave states an opening
New York’s position gained force after U.S. District Judge Analisa Torres rejected Kalshi’s request to block the state from enforcing gambling laws against its sports-event contracts. As detailed in the company’s subsequent appeal, the court found that New York’s gambling laws were not preempted by the federal Commodity Exchange Act and could apply to sports event contracts.
Kalshi immediately appealed to the Second Circuit, reflecting the importance of the ruling beyond one state. A durable decision favoring New York could encourage more state regulators to treat sports prediction markets as unlicensed betting. It also could weaken the argument that federal registration with the CFTC effectively shields operators from state gambling enforcement.
The case sits within a fragmented legal landscape. Courts in different jurisdictions have reached different conclusions on whether states may block or penalize Kalshi’s contracts while litigation proceeds. Some have granted temporary relief to prediction market operators, while others have allowed state enforcement to move forward. That inconsistency has increased pressure on the CFTC to defend its jurisdiction and on states to preserve their traditional role over gambling.
The New York ruling was especially important because it addressed the core preemption argument. Kalshi has maintained that event contracts are governed by federal commodities law, not by a patchwork of state gambling statutes. New York has countered that federal commodities regulation does not give an operator a free pass to offer sports wagers without complying with state licensing, age verification, tax and responsible gambling rules.
CFTC had already gone on offense
The CFTC’s emergency action in New York follows a broader litigation campaign against states that have tried to block or penalize prediction markets. In June, the agency sued Kentucky over efforts to restrict prediction markets, including an excise tax on operators’ transaction fees and lawsuits by the state attorney general.
Kentucky’s attorney general had described Kalshi and Polymarket as illegal sportsbooks, while the state asserted that its gaming regulator, not the CFTC, controls sports wagering. The CFTC responded that Kentucky was imposing large penalties on federally regulated markets and said its lawsuit was meant to protect federal authority. The agency also has brought or referenced actions involving states including Illinois, Minnesota, Rhode Island, Wisconsin and New Mexico.
Those lawsuits show the federal regulator is not merely responding case by case. It is trying to establish that prediction markets, when structured as event contracts on registered platforms, occupy a federal lane that states cannot close through gambling enforcement. Chairman Michael Selig has framed that as a defense of interstate financial markets rather than a special carveout for gambling-adjacent products.
States see the same facts differently. They argue that sports contracts tied to game outcomes function like bets for ordinary consumers, regardless of how they are packaged. If those products can be offered under CFTC oversight alone, state officials warn that operators could avoid licensing fees, tax obligations, advertising limits, integrity rules and responsible gambling controls that apply to sportsbooks.
Washington’s support is not uniform
The CFTC’s aggressive posture has drawn resistance in Congress, particularly from Democrats concerned that the agency is helping prediction markets sidestep state and tribal gambling authority. A group of senators led by Richard Blumenthal and Jeff Merkley has sought to block CFTC funding for litigation supporting prediction market cases against state and tribal regulators.
The funding push differs from earlier proposals that would have banned certain event contracts outright, including those tied to sports, elections and government actions. Instead, it targets the regulator’s ability to spend federal money challenging state enforcement. The senators described the agency’s approach as a campaign of litigation and intimidation, warning that it could deepen gambling-related harm and interfere with state and tribal prerogatives.
That opposition matters because the CFTC’s authority over prediction markets depends not only on court rulings but also on political support. If Congress restricts funding or amends the Commodity Exchange Act, the agency’s ability to defend prediction markets could narrow. Conversely, if courts uphold the CFTC’s position, states may face limits in applying gambling law to federally listed event contracts.
The tribal dimension adds another layer. Tribal gaming compacts and state gambling laws have long shaped who may offer wagering, under what conditions and with what revenue-sharing obligations. Prediction markets that reach customers nationwide could disrupt that balance if they are deemed outside traditional gambling regulation.
Consumer presentation remains a pressure point
Even as the CFTC defends its jurisdiction, it has signaled concern about how prediction markets present products to consumers. In August, the agency warned prediction market operators against using sportsbook-style odds, saying American odds formats could mislead users about the nature of derivatives transactions and obscure market depth and pricing impact.
That guidance highlights a tension in the CFTC’s position. The agency argues these markets are financial products, but it also recognizes that sportsbook-like design can blur the distinction for consumers. The warning came as operators expanded sports offerings and faced criticism from sportsbooks, state governments and legislators who say the products are too close to betting to be governed only by commodities rules.
The agency has also explored a broader framework for determining whether event contracts involve prohibited activities under the Commodity Exchange Act’s special rule, including gaming, unlawful conduct, terrorism, assassination and war. That effort suggests the CFTC is trying to assert federal control while building guardrails that answer critics who say the market is moving faster than regulation.
New York’s case now tests whether those federal guardrails are enough. If the CFTC can keep Kalshi operating while courts decide the merits, prediction markets gain time and leverage. If New York ultimately succeeds, states may have a template to bring sports event contracts back under gambling law. The outcome could determine whether the industry develops as a federally regulated financial market, a state-regulated betting product or a hybrid shaped by years of litigation.
