New York State has sued Kalshi for allegedly running an illegal gambling operation in the state, marking another setback for the prediction market platform.

On Friday, New York Attorney General Letitia James filed a lawsuit seeking a court order to block Kalshi from operating in the state and require the company to pay fines and restitution to users.

According to a statement from the attorney general's office, the lawsuit alleges that Kalshi enables users to wager on sports, culture and elections without obtaining a license from the New York State Gaming Commission. 

The state argues that the company's prediction markets meet the legal definition of gambling and that Kalshi exposed New York residents — including individuals under the state's legal gambling age of 21 — to "serious personal and financial risk."

The lawsuit also claims that Kalshi has sidestepped its obligation to pay associated taxes.

$36 billion

Alongside the lawsuit, New York filed a motion for a temporary restraining order seeking to halt Kalshi's relevant event contracts in the state. The motion also requests the court to order Kalshi to pay full restitution to users, disgorge all proceeds obtained through the offerings, and pay penalties equal to three times its gains, as well as $100,000 for each offering. 

According to court filings, the requested compensatory damages could total at least $36 billion, pending a full accounting.

"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 New York Governor Kathy Hochul. 

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

The Block has reached out to Kalshi for comment.

Earlier on Thursday, the Commodity Futures Trading Commission filed a motion for a temporary restraining order, seeking to block New York from pursuing criminal or civil enforcement actions against Kalshi and other CFTC-registered prediction market platforms. The CFTC has been launching its own legal actions against state regulators to maintain sole jurisdiction over event contract markets.

Mounting legal pressure

Kalshi has been battling state regulators over its sports-event contracts. Earlier this week, a federal judge in New York once again declined to block the state from enforcing its gambling laws against Kalshi.

Last month, a Michigan judge issued a temporary restraining order against Kalshi, blocking the platform from offering sports-related event contracts in the state. Last week, a Washington court granted a request to temporarily block Kalshi from offering sports-related event contracts in the state, saying it operates illegal gambling activities under state law.

However, Minnesota has been an exception. Earlier this week, a Minnesota judge blocked the state from enforcing its new law banning prediction markets, allowing Kalshi and Polymarket to continue operating in the state while litigation proceeds.

Sports and gaming attorney Daniel Wallach told The Block that what sets New York apart from other states is the broad range of civil enforcement remedies available to the New York AG.

Wallach said the AG could potentially seek nationwide disgorgement from Kalshi, allowing the state to claw back allegedly unlawful profits regardless of where they were generated, including from out-of-state residents.

"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 added. "That's why the AG's Office is also seeking a full accounting."

Kalshi remains the largest prediction market platform in the world by trading volume, ahead of rival Polymarket. Kalshi's monthly volume reached $33 billion in June, while Polymarket and its U.S. platform saw a combined $13.95 billion, The Block's data dashboard shows.