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New York Lawsuit Tests Prediction Market Regulation

By  |  August 2, 2026
Polymarket, predictions market

New York has sued prediction market platform Kalshi, alleging the company is operating an unlicensed gambling business in violation of state law, according to Reuters.

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    The lawsuit, filed Friday by New York Attorney General Letitia James, argues that Kalshi’s event-based contracts amount to illegal gambling under New York law because the company is not licensed by the New York State Gaming Commission, Reuters reported. State officials are seeking to halt Kalshi’s operations in New York, recover alleged unlawful profits and pursue civil penalties that Reuters said could total as much as $36 billion.

    Kalshi rejected the allegations, maintaining that it operates a federally regulated financial exchange under the oversight of the U.S. Commodity Futures Trading Commission, or CFTC. According to Reuters, the company contends that federal law gives the CFTC exclusive authority over its prediction markets and has moved to transfer the case to federal court.

    The lawsuit marks the latest escalation in a broader legal battle over whether prediction markets should be regulated by states as gambling or by the federal government as financial markets, according to Reuters.

    Related: https:Reuters reported that New York officials argue the platforms expose consumers to financial risks and allow younger users to participate in markets that resemble sports betting. The state also contends that Kalshi’s operations bypass licensing and other consumer protections required under New York gambling laws.

    Read more: Kalshi Challenges Illinois Sports Betting Tax as Prediction Market Jurisdiction Fight Escalates

    Kalshi has disputed that characterization, saying its markets function more like futures exchanges than sportsbooks because participants trade contracts tied to the outcomes of future events rather than placing bets directly against the company, according to Reuters.

    The case follows earlier legal action by New York against prediction market businesses affiliated with Coinbase and Gemini, which state officials similarly accused of operating unlicensed gambling platforms, Reuters reported. The CFTC has separately challenged New York’s efforts to regulate prediction markets, arguing that federal law preempts state oversight in this area, according to Reuters.

    The dispute comes as prediction markets have expanded rapidly in recent years, particularly after gaining attention during the 2024 U.S. presidential election. Reuters reported that several states have taken steps to restrict or challenge Kalshi’s operations while courts continue to weigh the respective authority of state gambling regulators and federal commodities regulators.

    Source: Reuters