New York Sues Kalshi Over Alleged Unlicensed Gambling

New York has sued prediction market operator Kalshi, accusing the company of running an unlicensed gambling business that allows users to wager on sports, elections, television shows and other events through its website and mobile app.

Attorney General Letitia James filed the petition July 31 in New York County Supreme Court. The state is seeking to stop Kalshi from offering event contracts in New York without a gaming license and recover money tied to the alleged violations.

Kalshi describes its products as event contracts. Users purchase “Yes” or “No” positions tied to a future outcome, generally paying between 1 cent and 99 cents. A correct position pays $1, while an incorrect one pays nothing. The company charges a fee when the transaction is placed.

New York argues that the structure amounts to gambling regardless of the language used to market it. State law generally defines gambling as risking something of value on a contest of chance or a future event outside the person’s control, with the promise of receiving something of value if a particular outcome occurs.

That definition is central to the dispute. The attorney general claims customers are not merely buying financial products because their returns depend on outside events, such as which team wins a game, which candidate wins an election, or who wins a reality television competition.

Kalshi has not been licensed by the New York State Gaming Commission to accept sports wagers or operate a mobile betting platform. The complaint alleges that the company has nevertheless promoted its markets as legal throughout the United States and directed sports betting advertisements to New Yorkers.

Court filings describe contracts involving professional football and basketball, college games, point spreads, scoring totals and parlays that combine several outcomes into one position. Investigators also placed transactions through a New York-based account, including contracts tied to a college basketball game and the winner of “Big Brother.”

Several allegations focus on restrictions that apply even to licensed sportsbooks. New York generally bars mobile sports wagering by anyone under 21, while Kalshi permits users who are at least 18 to open accounts.

State law also prohibits bets on games involving New York college teams, regardless of where the event takes place. The petition claims Kalshi offered contracts involving Siena University and Hofstra University and promoted some college sports markets through social media.

Those allegations allow New York to argue that Kalshi is offering wagers that would be prohibited even if the company held a state license. They also support the state’s broader claim that the platform operates outside the rules imposed on authorized sportsbooks.

Licensing laws do more than decide which companies may enter the market. Approved operators must verify a customer’s age and location, follow advertising limits, provide tools that allow users to exclude themselves from betting, and support programs addressing problem gambling.

The attorney general claims Kalshi has avoided those safeguards while competing with licensed companies that must follow state regulations and pay taxes on gaming revenue. New York says those requirements are meant to reduce underage betting, misleading advertising and other risks linked to online gambling.

James brought the action under Executive Law § 63(12), which allows the attorney general to seek court orders and financial relief against businesses accused of repeated illegal conduct. The statute serves as an enforcement tool rather than a separate gambling ban.

Through that law, New York is relying on the state Constitution, gambling provisions in the Penal Law and statutes governing mobile sports wagering. The filing also invokes the federal Wire Act, claiming Kalshi used internet communications across state lines to transmit sports wagers, related information and payment confirmations.

No criminal charges were filed through the petition. The state is asking a civil court to issue an injunction and order Kalshi to provide an accounting of its customers, wagers, losses and gains.

The requested relief includes restitution, damages, the surrender of money allegedly obtained through unlawful conduct and a penalty equal to three times the company’s alleged gains. New York also seeks $100,000 for each unauthorized offer or attempted offer of sports wagering, although the petition does not calculate a total amount.

Kalshi’s federal regulatory status creates the larger legal question surrounding the case. The Commodity Futures Trading Commission designated the company as a contract market in 2020, placing it under the Commodity Exchange Act and federal rules governing derivatives exchanges.

Kalshi argues in separate litigation that the CFTC has exclusive authority over its event contracts and that federal commodities law prevents New York from regulating them as gambling. The company’s position relies on federal preemption, a doctrine that can limit state authority when Congress has placed a subject under federal control.

New York disputes that interpretation. State officials argue that federal oversight of financial exchanges does not give a company permission to disregard gambling laws, an area that states have traditionally regulated through licensing and consumer protection rules.

A federal judge in Manhattan rejected Kalshi’s request to block New York from enforcing its gambling laws while that dispute continues. The court found that the company had not shown a sufficient likelihood of succeeding on its preemption argument. Kalshi has appealed the ruling.

The attorney general’s new action reaches beyond sports contracts. New York is also challenging markets involving elections, entertainment and other events, arguing that each product qualifies as gambling when customers risk money on an uncertain outcome for a possible payout.

Kalshi removed the case from New York County Supreme Court to the U.S. District Court for the Southern District of New York. The enforcement action remains pending, along with the company’s separate appeal before the 2nd U.S. Circuit Court of Appeals.