New York Sues Kalshi, Seeking $36 Billion Disgorgement
New York Attorney General Letitia James filed a verified petition against Kalshi in Manhattan Supreme Court on Friday,
Jame is accusing the prediction market platform of operating an illegal, unlicensed gambling business in violation of state law and seeking at least $36 billion in damages pending a full accounting. Governor Kathy Hochul announced the suit jointly with James, framing it explicitly as a consumer protection action. “No matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple,” James said.
The CFTC wasted no time in responding. Chairman Michael Selig filed a separate federal lawsuit seeking to block New York’s petition, asserting the agency’s exclusive jurisdiction over CFTC-licensed designated contract markets. “Rather than seek reasoned answers from the courts,” Selig wrote on X, “Letitia James and New York seek to force an unprecedented sudden shutdown of prediction markets nationwide.” The same day New York filed its petition in state court, its federal adversary filed in federal court to stop it.
The simultaneous filings capture the exact dynamic that has defined this fight for two years: a state using its consumer protection powers to treat prediction markets as unlicensed gambling, and the CFTC using its financial regulatory authority to block that treatment. Both actions were filed on the same Friday, in the same city, against the same platform.
States Continue to Battle Prediction Markets on Their Own Turf
The New York suit did not come from nowhere out of the blue. Kalshi had been fighting off New York’s enforcement efforts in federal court since last year, seeking a temporary restraining order and preliminary injunction to stop the state from enforcing its gambling laws. The U.S. Court of Appeals for the Second Circuit denied Kalshi’s request for an injunction earlier this week, opening the door for the attorney general to file in state court. The Second Circuit denial is what made Friday’s filing possible on this timeline.
That procedural sequence follows exactly the pattern we have been tracking all year. States that pursue affirmative enforcement actions in their own courts, rather than waiting to be sued in federal court by Kalshi or the CFTC, are finding more traction than states that issued administrative orders and ended up defending preemption arguments on federal grounds. We noted this dynamic in our first piece on the New Mexico suit back in June, and the pattern has held consistently since. New York’s choice to file in state court once the federal injunction door closed reflects the same strategic logic.
$36 Billion Is Not Hyperbolic
The $36 billion figure is larger than Kalshi’s most recently confirmed valuation of $22 billion. Gaming attorney Daniel Wallach took to X to say that the figure may actually be understated once a full accounting of Kalshi’s nationwide customer base is completed. Understanding why requires understanding the specific legal tools New York used to construct the claim.
The remedies sought include a permanent injunction barring Kalshi from operating an unlicensed gambling business in New York, full restitution to customers, disgorgement of all proceeds, penalties under Penal Law § 80.10 equal to three times Kalshi’s gains, and a separate $100,000 penalty for each unauthorized offer to provide sports wagering under the state’s Racing Law.
The nationwide disgorgement power is the most distinctive element. New York’s Executive Law § 63(12) may permit the attorney general to claw back proceeds wherever the transaction occurred, not just from New York users. Kalshi is headquartered in New York, which is a very big deal in this scenario. That physical presence, combined with § 63(12)’s reach, gives the state a claim over revenue generated from users across the country. Wallach described this as what sets New York apart from every other state that has sued Kalshi: the broad civil enforcement remedies available under New York law create exposure that exceeds what other jurisdictions can reach.
The age restriction adds another dimension. New York’s petition specifically alleges Kalshi made its platform available to residents aged 18 to 20, below the state’s minimum age of 21 for mobile sports betting, exposing that demographic to serious personal and financial risk.
The Pennsylvania Gaming Control Board raised the same concern in a formal CFTC complaint in May. The Texas Medical Association called for a 21+ age floor in testimony we covered last month. The age argument, which we noted was an analytically awkward one for Kalshi given that its own defense had cited the low percentage of 18-21 users, is now in a New York Supreme Court filing.
The Scope Goes Beyond Sports Betting
Most state enforcement actions have focused on sports event contracts as the clearest analog to licensed sports betting. New York’s petition goes even further: it claims Kalshi’s election, culture, and other event contract offerings also put the company in violation of state law. That broader scope, if accepted by the court, would affect the full range of Kalshi’s product catalog rather than just the sports contracts that have been the primary focus of regulation elsewhere.
Kalshi’s response was predictable and legally consistent with every prior challenge. The company maintains that it is federally licensed and regulated, that states have no authority to govern its products, and that the CFTC’s exclusive jurisdiction claim protects it from exactly this kind of state action.
The company is also in a stronger factual position than New York’s framing implies: it has been implementing geofencing, cooperating with CFTC enforcement, building out its compliance infrastructure, and has the backing of its federal regulator in the same courthouse where New York filed.
The State vs. Federal Battle Continues
Whether Friday’s filing represents an existential threat to Kalshi depends largely on whether New York state court can enforce an order against a federally licensed exchange over the CFTC’s objection, and whether the nationwide disgorgement theory survives judicial scrutiny. Both questions are genuinely open.
A Minnesota judge earlier this week blocked the state from enforcing its new prediction market ban, allowing Kalshi and Polymarket to continue operating there while litigation proceeds. That result, a state court ruling in Kalshi’s favor in the same week New York filed, illustrates how unsettled the landscape remains. Different courts in different jurisdictions are reaching different conclusions on similar legal questions.
The Sixth Circuit heard oral arguments on the consolidated Ohio and Tennessee appeals Wednesday in Cincinnati. The New Jersey Supreme Court certiorari petition deadline is today. The CFTC NPRM comment period closed Sunday. And now New York has filed the largest damages claim in the prediction markets fight, in the state where Kalshi is headquartered, on the last day of July.
For a company valued at $22 billion seeking a new round that would push it toward $40 billion, a $36 billion damages claim filed by the attorney general of its home state on the day its federal regulator’s comment period closed is the kind of event that restructures the conversation. Wallach called it a potential existential threat. Kalshi went the other direction and called it an overreach. The courts will decide which description is accurate, and they will do so while half a dozen other proceedings involving the same legal questions develop simultaneously.
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