New York sues Kalshi for $36B over illegal gambling claims

New York State filed a lawsuit against Kalshi on Friday, seeking at least $36 billion in compensatory damages and demanding the prediction market platform halt operations in the state.

Attorney General Letitia James alleges Kalshi runs an illegal gambling operation by allowing users to wager on sports, elections and cultural events without a license from the New York State Gaming Commission. The state claims the platform exposed residents, including minors under the legal betting age of 21, to financial risk while evading associated taxes.

The sheer scale of the requested damages represents an existential threat to the prediction market sector. New York is requesting full restitution to users, the disgorgement of all proceeds, and penalties equal to three times the company's gains. The state also filed a motion for a temporary restraining order to immediately block Kalshi's relevant event contracts.

Legal experts suggest the final financial exposure could exceed the initial $36 billion figure. Attorney Daniel Wallach noted that New York's broad civil enforcement tools could allow the state to seek nationwide disgorgement, clawing back profits generated from out-of-state users.

"When you consider the totality of Kalshi's nationwide customer base — and the prospect of treble civil penalties — the reported $36 billion claim may actually be understated," Wallach said. "That's why the AG's Office is also seeking a full accounting."

The lawsuit escalates a jurisdictional war between state regulators and federal authorities that will dictate the future of event contracts. On Thursday, the Commodity Futures Trading Commission filed a motion for a temporary restraining order, attempting to block New York from pursuing enforcement actions against Kalshi and other CFTC-registered platforms.

For investors and market participants, this parallel legal action creates deep regulatory uncertainty. The outcome will determine whether prediction markets operate under federal commodities law or face a patchwork of state gambling statutes.

Kalshi currently dominates the sector, processing $33 billion in monthly volume in June compared to $13.95 billion across Polymarket's platforms. However, the company faces mounting state-level setbacks. Courts in Michigan and Washington have recently issued temporary restraining orders against Kalshi's sports contracts, though a Minnesota judge temporarily blocked that state's ban on prediction markets.

"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," said Governor Kathy Hochul.

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