New York sues Kalshi, calling it an 'illegal gambling' operation

“New York’s gambling laws protect children from underage betting and help combat gambling addiction,” James, a Democrat, said in a statement. "No matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple."

The legal challenge claims Kalshi "preys" on users under age 21 — despite New York law barring underage users from mobile sports betting — and "endangers people's financial, emotional and physical health."

Gov. Kathy Hochul said 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."

"This choice has consequences ... New York is taking action to stop this illegal behavior and bring Kalshi into compliance, because no company is above the law," Hochul, a Democrat, said in a statement.

Kalshi pushed back against the allegations, calling the legal challenge "political theater" and vowing to fight the New York in court. 

"It’s sad to see this type of political theater from the leadership in our own state," the company's statement said. "States can’t just shut down a federally licensed exchange. This would also just hurt New Yorkers, who would be driven offshore. We love New York, we love New Yorkers, and New Yorkers love our product.”

The lawsuit is moving ahead after a federal appellate judge on Wednesday denied Kalshi’s request to put on hold a lower court’s ruling that suggested New York’s gambling rules could apply to the market.

Kalshi also sued the New York Gaming Commission in October after regulators tried to prohibit the company from offering its prediction market in the state. The outcome of that case is still pending.

Meanwhile, federal regulators are moving to block New York from shutting the prediction market down while the legal challenge plays out in federal court. In a court filing overnight, the Commodity Futures Trading Commission argued that the federal government has ultimate jurisdiction over the market.

"Altogether, allowing New York to enforce its gambling laws against CFTC-regulated (entities) has the potential for a single state to bring entire federally regulated markets to the brink of destruction,” the regulatory agency wrote. 

The prediction markets allow users to trade on real-world events and possible future outcomes, ranging from whether the U.S. will succeed in the military conflict in Iran to whether the New York Mets will win the World Series. The websites, which are federally regulated, facilitate transactions and make money through fees on the trades.

Critics say the companies are siphoning away millions of dollars in revenue from sports-related event contracts, which cuts into taxes state gambling agencies collect from licensed sportsbooks.

In April, James filed a lawsuit against Coinbase and Gemini, asking a state judge to bar the companies from operating in the state unless and until they get licenses from the state Gaming Commission.

In the suit, James alleges that the platforms are operating illegal sports betting operations in the state through their prediction-market offerings. That case is still pending.