Federal Regulators Challenge State Efforts To Shut Down Kalshi, Claiming Sole Jurisdiction

A raft of state efforts to rein in Kalshi could eventually end up at the Supreme Court in the face of pushback from federal regulators who claim sole jurisdiction over the fast-growing prediction market.New York is the latest state to sue Kalshi arguing that its platform is an unlicensed gambling platform. Attorney General Letitia James, on Friday, announced a lawsuit has been filed in New York’s state courts claiming Kalshi is “running an illegal gambling operation” in the state through its prediction market platform. The lawsuit alleges that Kalshi’s prediction markets meet the legal definition of gambling because the outcomes of the events on which its users are betting are uncertain and outside the control of the bettor or hinge on a game of chance.The lawsuit seeks a permanent injunction banning Kalshi from offering event contracts relating to sports, culture, elections, and other events in New York without obtaining licenses from the New York State Gaming Commission. The suit also demands that the company pay fines, forfeit all “illegal” gains, and pay restitution to users.“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,” Governor Kathy Hochul said in a news release. “This choice has consequences, and working closely with Attorney General James, New York is taking action to stop this illegal behavior and bring Kalshi into compliance, because no company is above the law.”New York-based Kalshi, which has Donald Trump Jr. as a strategic adviser and equity holder, claims the suit has nothing to do with the law or gaming but is an effort to appease the casino industry.“It’s sad to see this type of political theater from the leadership in our own state. States can’t just shut down a federally licensed exchange. This would also hurt New Yorkers, who would be driven offshore. We love New York, we love New Yorkers, and New Yorkers love our product,” Kalshi’s head of communications, Elisabeth Diana, said in an emailed statement.The company operates as a “designated contract market” overseen by the Commodity Futures Trading Commission. The independent federal regulatory agency — tasked with overseeing the derivatives markets — filed, overnight, a request for a temporary restraining order against any enforcement action by New York against Kalshi. The commission says it has exclusive jurisdiction to regulate prediction markets and finds the suit egregious.“Rather than seek reasoned answers from the courts, Letitia James and New York seek to force an unprecedented sudden shutdown of prediction markets nationwide,” the commission’s Trump-appointed chairman, Michael Selig, said in an X post.Arizona, in March, became the first state to file criminal charges against Kashi, claiming it was an illegal gambling operation. A federal judge in that case ruled that Arizona could not pursue enforcement because the event contracts are swaps under federal law.State courts have allowed Michigan, Nevada, and Washington to stop or limit Kalshi’s operations in their states as part of ongoing lawsuits. The Commodity Futures Trading Commission, in mid-July, issued a stay and told Kalshi to ignore a Michigan state court order directing Kalshi to cancel certain trades involving Michigan residents.“Canceling trades that have already been executed is an unprecedented step that risks a cascading effect on the entire marketplace and undermines the certainty in contracting that is a necessary component of a functioning market,” Mr. Selig, said in a statement.

Federal Regulators Challenge State Efforts To Shut Down Kalshi, Claiming Sole Jurisdiction

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