New York AG Letitia James Sues Kalshi, Seeking Up to $36 Billion Over Alleged Illegal Gambling

New York Attorney General Letitia James has filed a lawsuit against prediction market operator Kalshi, seeking to block the company from operating in the state without a gambling license and to recover penalties that could total as much as $36 billion. The suit, filed Friday, alleges Kalshi has been running an illegal, unlicensed gambling platform by letting users wager on sports, elections, and cultural events.

The filing escalates a fight that has been building for months between state regulators and the fast-growing prediction market industry, which has leaned on federal oversight from the Commodity Futures Trading Commission to argue it operates outside the reach of state gambling law.

How New York Arrived at a $36 Billion Number

James’ office is seeking restitution for affected consumers, forfeiture of what it calls illegally obtained gains, and fines equal to three times the proceeds Kalshi generated from gambling activity in New York. The attorney general is also pursuing $100,000 for every alleged attempt Kalshi made to contact customers in the state — a penalty structure that, combined, could reach the $36 billion figure cited in the suit.

Kalshi moved Friday to shift the case to federal court in Manhattan, arguing it operates as a federally regulated futures exchange rather than a gambling operator. New York is expected to fight that venue change, setting up an early procedural battle before the underlying dispute over event contracts is even addressed.

A Fight Over What Kalshi Actually Is

At the center of the case is a jurisdictional question that has followed prediction markets since they began offering sports-related contracts: are Kalshi’s products financial instruments regulated by the CFTC, or are they gambling products that should fall under state licensing, taxation, and consumer-protection rules? Kalshi spokeswoman Elisabeth Diana pushed back on the lawsuit, calling it “political theater” and arguing that “states can’t just shut down a federally licensed exchange.”

New York’s position is more direct. The state argues Kalshi’s contracts meet the legal definition of gambling because users are staking money on uncertain outcomes they don’t control, and that the company sidestepped licensing and tax obligations that apply to casinos and mobile sportsbooks operating legally in the state. The investigation also found that Kalshi allows users between 18 and 20 to participate, below the state’s minimum betting age of 21 for mobile wagering.

“No matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple,” James said. “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.”

CFTC Pushes Back on Behalf of Prediction Markets

The CFTC, now led by Trump appointee Michael Selig, has taken the opposite side of this fight, previously suing New York over its prediction market crackdown and asserting federal authority over the space. Selig responded to the new lawsuit on social media, writing that “rather than seek reasoned answers from the courts, Letitia James and New York seek to force an unprecedented sudden shutdown of prediction markets nationwide,” and pledged the CFTC would continue defending its jurisdiction.

Governor Kathy Hochul defended the state’s action, saying Kalshi had “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.” She added that “this choice has consequences,” and that New York is working with James’ office “to stop this illegal behavior and bring Kalshi into compliance, because no company is above the law.”

Kalshi Had Been Negotiating Before the Suit

Before filing, New York officials had reportedly spent weeks negotiating with Kalshi over a potential framework covering self-exclusion tools, advertising limits, and other consumer protections. Kalshi also proposed a tax agreement modeled on a recent North Carolina deal, which would tax prediction market trades at 6% compared with the 23% rate applied to traditional gambling revenue. That proposal, according to a person familiar with the talks, could have generated an estimated $10 billion for New York over five years — a number that stands in sharp contrast to the $36 billion the state is now pursuing through litigation.

Kalshi launched in 2021 and expanded into sports-related trading in 2025, marketing itself with the tagline “Kalshi: Legal in all 50 states,” even though traditional online sports betting is legal in only 39 states. The company’s aggressive national rollout has made it, and rivals in the space, a target for state regulators who argue that sports-based event contracts function identically to sportsbook wagers offered by licensed operators already paying state taxes and fees.

Part of a Broader Pattern

Friday’s lawsuit is not New York’s first move against the prediction market industry. The state previously sued Coinbase and Gemini over their prediction market offerings, calling them illegal gambling as well, and the state Gaming Commission issued a cease-and-desist order to Kalshi in late 2025 that the company challenged in federal court. The CFTC’s own suit against New York earlier this year set up the jurisdictional clash that is now playing out again in this latest filing.

With Kalshi seeking a venue change to federal court and New York planning to contest it, the case is likely to spend months on procedural questions before any ruling addresses the core issue: whether prediction markets are exchanges to be regulated federally, or sportsbooks that owe states licensing fees and taxes like everyone else in the industry.