New York Attorney General Sues Kalshi, Alleges Prediction Market Is ‘Illegal Gambling Operation’

The state’s allegations

New York Attorney General Letitia James filed a lawsuit against Kalshi in a state court in Manhattan on Friday, 31 July 2026, calling the prediction-market platform an “illegal, unlicensed gambling operation.” The petition claims Kalshi violated state laws by accepting wagers without a license from the New York State Gaming Commission, failing to pay taxes comparable to those required of casinos and mobile sports betting platforms, and offering services to individuals aged 18 to 20 (the state minimum for mobile sports betting is 21). James’s office stated that the platform meets the legal definition of gambling because users bet on events whose outcomes are uncertain and outside their control.

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

The lawsuit requests that the court order Kalshi to forfeit all illegal gains, distribute restitution to harmed consumers, and pay fines equal to three times the gains the company made through its illegal actions. Kalshi had been in negotiations with New York officials in recent weeks over tax and consumer protection issues before the suit was filed.

Federal and state legal conflict

The action places New York among a growing group of states suing Kalshi, joining Nevada, New Mexico, Arizona, and Washington. The case is part of a wider dispute over jurisdiction: Kalshi and other platforms argue they are federally licensed and regulated by the Commodity Futures Trading Commission, while states counter that the bulk of the business (especially sports betting) falls under their authority. The CFTC has claimed exclusive oversight and has challenged regulatory activity in at least nine states, suing New York in April.

The lawsuit arrived two days after the federal appeals court in Manhattan rejected Kalshi’s request to avoid being subjected to New York gambling laws while it appeals a 8 July ruling by U.S. District Judge Analisa Torres, who declined to grant a preliminary injunction against the state. Torres found that New York’s interests in preventing gambling addiction, preserving sports integrity, and avoiding a proliferation of unregulated contracts “heavily” outweighed Kalshi’s interest in ensuring the primacy of federal law.

Kalshi’s response

Kalshi’s head of communications, Elisabeth Diana, dismissed the suit as “political theater” and argued that states cannot shut down a federally licensed exchange. She warned that the action would hurt New Yorkers by driving them offshore.

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.

CFTC Chairman Mike Selig also pushed back, posting on X that the commission had already sued to stop New York’s effort and criticizing what he called an “unprecedented sudden shutdown.”

Insider trading and other concerns

Beyond the gambling classification debate, the prediction-market industry has drawn scrutiny over insider trading. Earlier in July, ABC News reported that President Donald Trump’s teleprompter operator made $100,000 placing bets on Kalshi related to Trump’s speeches. Other reports have flagged concerns about wagers on sensitive events, including the timing of U.S. strikes and ceasefires with Iran. Donald Trump Jr. is both an investor in Polymarket and an advisor to Kalshi.

What comes next

The court in Manhattan will now consider New York’s request to block Kalshi from operating in the state and to impose financial penalties. The outcome is likely to influence parallel cases across the country as states and the federal government continue to clash over who regulates the fast-growing prediction-market sector.