New York sues Kalshi for illegal gambling operations

Charlotte Capewell

31 July 2026 at 6:13am UTC-4

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New York has sued prediction market operator Kalshi over allegations that it is operating as an illegal, unlicensed gambling business.

New York Governor Kathy Hochul and Attorney General Letitia James announced the lawsuit against the company, which allows users across the US to wager on the outcome of sports events and markets linked to elections, culture, and other public events.

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The Office of the Attorney General said its investigation found that Kalshi’s prediction markets met the state’s legal definition of gambling as they involve uncertain outcomes that are outside the bettor’s control. The lawsuit adds that Kalshi has operated without a license from the New York State Gaming Commission (NYSGC) and without paying the relevant gambling taxes.

“New York’s gambling laws protect children from underage betting and help combat gambling addiction,” said Attorney General James 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.”

State officials have also highlighted that Kalshi’s platform is available to users aged 18 to 20, while New York requires mobile sports betting customers to be 21. The lawsuit argues that this puts younger users at risk of gambling-related harm.

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New York seeks a court order to stop Kalshi from operating in the state and requests that the company pay restitution to consumers and financial penalties equal to three times its profit. According to US Gaming Law and Sports Betting Attorney Daniel Wallach, the Attorney General’s Office is also seeking US$36 billion in compensation damages.

The new legal action follows a cease-and-desist order issued by the NYSGC to the company in October 2025. Earlier this month, US District Judge Analisa Torres also blocked Kalshi’s bid for a preliminary injunction, arguing that New York was able to enforce its gambling regulations against the operator.

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

States press the gambling-law argument

New York’s lawsuit against Kalshi lands in a widening fight over whether sports-linked prediction markets are federally regulated financial contracts or state-regulated gambling products. The dispute has moved quickly from cease-and-desist letters to coordinated litigation, with state attorneys general arguing that Kalshi’s “event contracts” look and function like sports wagers, even if they are traded through a commodities framework.

The stakes are significant for both sides. If courts accept the states’ view, prediction market operators could be forced to obtain sports betting licenses, comply with gambling-age rules, pay state taxes and install responsible-gaming controls similar to those used by licensed sportsbooks. If Kalshi prevails, it could strengthen a model that allows federally regulated exchanges to offer sports, politics and cultural event markets across state lines without the same licensing structure that governs online sportsbooks.

That legal divide has sharpened as Kalshi’s sports markets have expanded and as third-party platforms have widened access. State officials have focused on the similarities between Kalshi’s sports contracts and conventional sports betting, including markets tied to moneylines, point spreads and totals. Kalshi has countered in other disputes that it is overseen by the Commodity Futures Trading Commission and that state gambling laws cannot block federally regulated event contracts.

Massachusetts helped set the enforcement template

The current pressure on Kalshi gained momentum when Massachusetts Attorney General Andrea Joy Campbell filed a lawsuit accusing Kalshi of unlawful sports wagering. The complaint said Kalshi offered sports bets through yes-or-no contracts while avoiding the licensing, tax and consumer-protection obligations imposed on legal sportsbooks in the state.

Massachusetts officials emphasized that Kalshi had not applied for a sports wagering license from the Massachusetts Gaming Commission, even though its offerings allegedly resembled products sold by regulated sportsbooks. The state also pointed to age restrictions. Massachusetts requires online sports bettors to be 21, while Kalshi’s platform has been available to users 18 and older. That difference became central to the argument that prediction markets can expose younger users to gambling-related harm while operating outside state safeguards.

The Massachusetts case also underscored the role of responsible-gaming rules. Licensed operators must provide player protections such as compliant limits and consumer disclosures. The attorney general’s office argued Kalshi did not provide comparable protections while marketing sports event contracts on television, social media and through distribution partners. Massachusetts officials tied the case to a broader public-health strategy, including Campbell’s earlier youth sports betting initiative, which was announced as concerns grew over online betting access among young adults.

Robinhood’s role raised the distribution stakes

The conflict widened when Robinhood, which provides users access to Kalshi sports event contracts, brought its own lawsuit against the Massachusetts Gaming Commission. Robinhood sought to prevent state gambling enforcement from disrupting sports prediction markets available through its app, arguing that trades occur on Kalshi’s platform and should not be treated as gambling activity by the state.

Robinhood’s involvement changed the commercial context. Kalshi is not only defending its own exchange model; it is also testing whether prediction markets can be distributed through mainstream financial technology platforms. That raises the potential reach of sports event contracts well beyond users who seek out a specialized prediction market. For regulators, the distribution model strengthens concerns that sports betting-like products can spread rapidly without the gatekeeping rules applied to licensed sportsbooks.

The Massachusetts litigation also showed how state actions can ripple through partnerships. Robinhood’s filing suggested that enforcement threats could chill product access and create uncertainty for platforms that connect users to prediction markets. That same concern appeared in other Kalshi litigation, with the company arguing that state pressure can deter partners and damage its business even before a court decides whether the underlying contracts are lawful.

Washington, Ohio and other states widen the map

Beyond the Northeast, state regulators and attorneys general have taken varied but increasingly assertive approaches. In Washington, Attorney General Nick Brown filed a lawsuit alleging Kalshi violated state gambling laws, citing Washington’s restrictive gambling framework and its tribal sports betting model. The complaint said Kalshi allowed wagers on sports, elections and other events and asked for an injunction to stop operations in the state.

Washington officials said more than 90% of Kalshi’s activity was tied to sports-related contracts, a claim that reinforced the state argument that sports markets are not incidental to the business model. The lawsuit also cited alleged betting activity involving local events, including college basketball games and political races. That local focus matters because states are trying to show concrete effects on residents, not just abstract jurisdictional concerns.

Kalshi has also gone on offense. In Ohio, the company filed a federal lawsuit against the Ohio Casino Control Commission and Attorney General Dave Yost’s office after the state moved to block sports futures activity. Kalshi said Ohio’s threats had scared off potential business partners and argued that federal law should preempt state interference. Ohio regulators, meanwhile, maintained that only licensed sports gaming operators can offer sports betting in the state.

The Ohio dispute followed a broader legal position taken by Yost and dozens of other attorneys general supporting state authority over online betting. That alignment shows why the Kalshi cases are not isolated enforcement actions. They are part of a broader state effort to protect sports betting regimes built after the U.S. Supreme Court opened the door to legalization in 2018.

Private plaintiffs add consumer exposure

Kalshi is also facing pressure from consumers. A federal complaint in New York brought a proposed nationwide class action accusing the company of illegal sports betting. The plaintiffs alleged they were misled into believing they were trading lawful contracts when, in their view, they were placing unlicensed sports wagers.

The class-action theory increases the financial risk beyond state penalties and injunctions. Plaintiffs are seeking restitution for losses, damages and a jury trial. If such claims survive early legal challenges, Kalshi could face consumer refund demands tied to activity across multiple states. That would add another layer to enforcement actions seeking to halt operations or impose penalties.

The consumer lawsuit also mirrors state allegations about licensing and deception. Plaintiffs argue that Kalshi unjustly profited by offering products that should have been regulated as gambling. States have framed similar conduct as a threat to tax collection, age controls and addiction safeguards. Together, those claims create a common narrative: prediction markets may be marketed as financial products, but sports-linked contracts allegedly produce the same consumer risks that gambling laws are designed to manage.

The preemption question drives the next phase

The legal center of the dispute is federal preemption. Kalshi’s strongest argument is that CFTC-regulated event contracts fall under federal commodities law, limiting states’ ability to treat them as illegal gambling. States argue that federal oversight of an exchange does not give companies permission to bypass state sports betting statutes, especially when the products are available to residents and mirror sportsbook markets.

Early rulings have not ended the conflict. Kalshi has been able to operate in some jurisdictions while facing setbacks or enforcement threats in others. That patchwork creates uncertainty for operators, platforms, sportsbooks and regulators. It also increases pressure for appellate courts, federal regulators or Congress to clarify how sports event contracts should be treated when they overlap with legalized gambling markets.

For New York, the case fits into a broader national campaign to define the boundary between trading and wagering. For Kalshi, it is a test of whether a federally regulated prediction market can scale into sports without state-by-state gambling approval. The outcome could determine whether event contracts become a parallel sports betting market or are folded into the same licensing and consumer-protection system that governs sportsbooks.