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New York Attorney General Sues Kalshi, Calling Its…

New York Attorney General Letitia James filed suit against Kalshi on Friday, July 31, 2026, alleging the federally licensed prediction market exchange operates an illegal gambling platform in violation of state law. The suit was filed in Manhattan state court less than one hour after the U.S. Commodity Futures Trading Commission filed an emergency motion asking a federal judge to stop New York's enforcement activity entirely.

The collision of a state lawsuit and a simultaneous federal preemption filing on the same morning captures precisely how high-stakes the prediction market jurisdiction battle has become — and why the industry is now bracing for a Supreme Court showdown.

What New York Is Alleging

In her petition, AG James argued that Kalshi's prediction markets are gambling because users can wager on events whose outcomes they do not control — including who will win the Super Bowl or the reality television show Big Brother.

New York's specific charges:

Unlicensed operation: Kalshi allegedly failed to obtain a New York State Gaming Commission license before operating its platform in the state.
Underage access: The petition alleges Kalshi permitted 18- to 20-year-olds to trade on its platform, despite New York law requiring users to be at least 21 for mobile sports betting.
Consumer harm: The AG claimed that such platforms can encourage problem gambling and endanger users' financial, emotional, and physical health.

"New York's gambling laws protect children from underage betting and help combat gambling addiction," James said in a statement. "No matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple."

The lawsuit seeks a halt to Kalshi's alleged unlawful conduct, forfeiture of illegal gains, civil fines equal to triple those gains, and full restitution to customers.

This is not the AG's first prediction market action. James filed similar petitions in April against Coinbase Financial Markets and Gemini Titan, describing all three companies' so-called event contracts as "quintessentially" gambling.

Live market odds — will federal or state law win this fight?

The CFTC's Emergency Response

The timing of the CFTC's move — less than one hour before New York's petition was filed — underscored the federal agency's aggressive posture in defending what it calls exclusive jurisdiction over prediction markets.

The CFTC's emergency motion, filed in Manhattan federal court, argued that New York's enforcement activity constitutes "overreach" that would irreparably harm the agency and the markets it regulates. The CFTC has challenged regulatory activity in at least nine states, including New York, which the commission sued in April.

Kalshi, which is headquartered in New York, responded with characteristic defiance: "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."

New York Governor Kathy Hochul backed the AG: "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. This choice has consequences."

The Legal Scoreboard: 20 States vs. a Federal Regulator

Friday's filing adds another chapter to the most consequential regulatory battle in the prediction market industry's history. With 20 states now litigating with Kalshi, the legal landscape is sprawling and increasingly consequential.

Federal wins: The Third Circuit Court of Appeals — the only federal appellate court to have ruled on this dispute — sided with Kalshi in April 2026 in a 2-1 decision, upholding a preliminary injunction against New Jersey gaming regulators. The ruling established that the CFTC has exclusive jurisdiction over Kalshi's sports-related event contracts.

State wins: Despite the Third Circuit victory, states have secured the majority of lower court rulings. At least four states — Massachusetts, Michigan, Nevada, and Washington — have won court orders restricting Kalshi's sports contracts.

In New York specifically, the litigation timeline has been unfavorable for Kalshi:

Kalshi preemptively sued New York last October to block state enforcement before it began
On July 8, U.S. District Judge Analisa Torres (Southern District of New York) refused to issue a preliminary injunction blocking the state, finding that New York's interests in preventing gambling addiction and preserving sports integrity "heavily" outweighed Kalshi's interests. Torres notably agreed that Kalshi's contracts are legally swaps under the Commodity Exchange Act — but concluded that federal law still leaves room for states to regulate related gambling issues
On Wednesday, July 29, the Second Circuit Court of Appeals rejected Kalshi's request to stay its exposure to New York's gambling laws while the appeal proceeds

Friday's state lawsuit arrived while Kalshi was still absorbing that Second Circuit denial, just two days prior.

What the Markets Are Saying

Prediction markets have been actively pricing the probability of federal legislation limiting or banning sports event contracts — a direct reflection of the ongoing regulatory uncertainty. Every new state filing and every federal court ruling creates fresh pricing pressure on this market.

Kalshi's platform continues to operate in New York while the legal fight proceeds, though the AG's lawsuit seeks to halt that operation.

What This Means for Kalshi Users in New York

For now, Kalshi remains operational in New York. State enforcement actions are subject to federal preemption arguments — and the CFTC's emergency motion is designed to preserve the status quo while the courts work through jurisdiction.

However, the trajectory in New York courts has not favored Kalshi:

Judge Torres denied the injunction request in July
The Second Circuit declined to pause New York enforcement on July 29
The new AG lawsuit creates a separate state-court proceeding with much broader remedies

If the state court grants the remedies James is seeking — a halt to operations, forfeiture of gains, and triple civil fines — Kalshi would face enormous pressure to comply or appeal immediately. The CFTC's parallel federal filing could create a genuine standoff between state and federal courts on the same Manhattan island.

For users: Kalshi remains accessible in New York today. Open positions, predictions, and withdrawals function normally while the litigation proceeds. The company has consistently maintained that federal law preempts state regulation and has contested every enforcement action.

The broader industry question: As Bloomberg Law noted, sports contracts have accounted for roughly 80% of total trading volume on Kalshi and 39% on Polymarket since July 2024, according to a May 2026 report from the Pew Research Center. The fundamental question — whether state gambling law or the federal Commodity Exchange Act governs these contracts — will determine the entire shape of the prediction market industry.

Legal experts expect the dispute to reach the Supreme Court. The Ninth and Fourth Circuits have also heard arguments in related cases. A potential circuit split — with the Third Circuit favoring federal jurisdiction and other circuits potentially ruling differently — could accelerate a Supreme Court petition.

"I would certainly say the states are ahead in the count, but that's not deciding who's going to win at the end of the day," said Dan Boyle, a partner at Boies Schiller Flexner LLP whose practice focuses on commercial litigation. "I would be frankly shocked if we don't end up with a circuit split on some of these questions."

New Jersey has until September to file a petition for Supreme Court review of the Third Circuit's ruling, which could bring this issue to the high court on the fastest possible timeline.

Professor Joshua Mitts of Columbia Law School told Bloomberg Law he would expect the Supreme Court to ultimately favor the CFTC and federal authority: "It just doesn't seem plausible that this sort of internet-based activity would be in fact regulated by states."

FAQ

Is Kalshi still available in New York right now? Yes. As of Friday, July 31, 2026, Kalshi continues to operate in New York. The AG's lawsuit seeks to halt those operations, but no court has issued an order requiring a shutdown. The CFTC has simultaneously filed to block New York's enforcement.

Is this the same as the earlier CFTC lawsuit against New York? No. The CFTC previously sued New York in April 2026 to assert federal jurisdiction. Today's filing is New York's AG suing Kalshi directly — a state-level enforcement action. The two are legally connected but procedurally separate cases.

What states currently restrict Kalshi's sports contracts? At least four states have won court orders restricting Kalshi's activities: Massachusetts, Michigan, Nevada, and Washington. Minnesota's law banning prediction markets was blocked by a federal judge on July 27, 2026. New York's AG has now filed suit, though no court order restricting Kalshi has been issued in this new case yet.

Could this force Kalshi to shut down in New York? Only if a court orders it to — and enforcement would then be contested immediately. The AG's suit requests that outcome, but Kalshi has the CFTC fighting in its corner in federal court, and the company has consistently prevailed at the federal appellate level. New York's courts have, however, been more receptive to the state's gambling-law arguments than courts in New Jersey.

Does this affect Polymarket or other platforms? The AG's direct target is Kalshi. However, James filed similar actions in April against Coinbase Financial Markets and Gemini Titan. The legal arguments she's making — that CFTC-licensed event contracts constitute state gambling — would apply broadly if accepted by courts. Each platform's exposure depends on its specific licensing structure and user base.

Conclusion

Friday's New York AG suit against Kalshi is the most aggressive state enforcement action since the AG's earlier cases against Coinbase Financial Markets and Gemini Titan. Combined with the CFTC's simultaneous emergency filing, it has created a genuine legal collision in Manhattan — state court and federal court, on the same morning, on the same fundamental question.

The Third Circuit's April ruling gives Kalshi its strongest legal argument. But New York's courts — Judge Torres in July and the Second Circuit this week — have not been receptive to the federal preemption argument in this specific jurisdiction.

The Supreme Court may ultimately be the only venue that can resolve this definitively. For now, the industry's most consequential legal battle is playing out in New York, simultaneously in state and federal court, in the same borough where Kalshi is headquartered.

PredictionMarkets.US will track court rulings and enforcement developments as they emerge.

New York Attorney General Sues Kalshi, Calling Its Prediction Markets Illegal Gambling