NEW YORK – New York Attorney General Letitia James and Governor Kathy Hochul filed suit against Kalshi on Thursday, calling the federally regulated prediction market “a gambling platform, plain and simple” and seeking up to $36 billion in civil penalties, the highest-stakes legal challenge yet to the booming events-contracts industry.
The federal response came within hours. The Commodity Futures Trading Commission, which licensed Kalshi in 2021 and has spent the past year suing states that tried to shut it down, filed for an emergency temporary restraining order to block New York from proceeding. Whether a federal court grants it, and how quickly, will determine whether Kalshi continues operating in the country’s largest financial market while the case unfolds.
The $36 billion figure attached to New York’s suit dwarfs the company’s estimated valuation and reflects the state’s reading of penalties available under its gambling statutes. Kalshi allows users to trade contracts tied to the outcomes of sporting events, elections, weather, and economic indicators. New York says that constitutes illegal gambling. The CFTC says it constitutes regulated derivatives trading, and that federal law pre-empts state interference.
New York is not the first state to move against Kalshi, but it is the most consequential. Michigan, Minnesota, and Kentucky have all attempted to block the platform with mixed results. Federal courts in both Minnesota and Michigan sided with Kalshi and the CFTC, holding that the Commodity Exchange Act pre-empts state gambling statutes. Kentucky’s challenge is still pending. New York, with its sprawling financial services regulatory apparatus and its AG’s track record on large-scale enforcement actions, is a different kind of adversary.
James, who has pursued Wall Street banks, crypto exchanges, and social media platforms in her tenure, framed the Kalshi suit as straightforward consumer protection. Her office argued the platform accepts wagers on who will win football games and whether specific athletes will perform above statistical thresholds, conduct it considers indistinguishable from sports betting. Hochul aligned herself with the action, reinforcing the state’s position that it will not defer to federal regulators it views as having licensed a product that bypasses New York’s gambling licensing regime.
The suit arrived one day after a ruling in Minnesota showed federal preemption doctrine holding. As the Minnesota prediction market ban ruling demonstrated, a federal judge blocked the state’s attempt to halt prediction market trading by citing the CFTC’s regulatory primacy. New York will need to distinguish its action from those prior defeats, or wait for an appellate court to define the preemption boundaries more narrowly.
Kalshi launched in 2021 after winning CFTC approval for what it described as an event-contract market. Backed by Andreessen Horowitz and other Silicon Valley investors, the company has grown alongside Polymarket, a rival prediction platform. The CFTC’s defense of both companies escalated in June when it filed the CFTC Kentucky prediction market lawsuit, arguing federal commodities law leaves no room for state gambling authorities to regulate federally licensed derivatives platforms.
The commission has framed its intervention not as corporate protection but as a matter of federal supremacy: allowing fifty state gambling regulators to impose conflicting rules on a federally licensed market would fracture it entirely. Federal courts in Michigan and Minnesota agreed. But those decisions do not bind the Southern District of New York, which may reach its own conclusions on preemption and apply them to the country’s largest concentration of financial industry activity.
Polymarket, which operates outside CFTC regulation and serves an international user base largely through cryptocurrency settlement, is not named in the New York suit. But the legal outcome will shape its position regardless. If New York prevails, the preemption argument weakens across the board, potentially opening Polymarket and other unregistered platforms to similar state enforcement actions. A Kalshi victory would make federal licensing look like the primary protection any prediction market operator needs.
The prediction market industry recorded more than $100 billion in contract volume in 2025, according to company disclosures. Kalshi has said its sports-event contracts attracted hundreds of millions of dollars in open interest since the NFL season opened. New York remains one of the largest single-state markets for any financial product. Whatever the courts decide, the outcome will determine whether prediction markets can operate freely across the United States or must negotiate a patchwork of state approvals.
CNBC first reported the New York lawsuit and the CFTC’s emergency response on Thursday. What remains unclear is how quickly the restraining order request will be heard, whether Kalshi will be required to suspend New York operations while the case proceeds, and whether other Democratic-led states will follow New York before any federal appellate ruling settles the preemption question. James has not said whether she expects to prevail before a court imposes clarity on the federal-state divide.
