New York State Takes Legal Action Against Kalshi Over Alleged Illegal Gambling Operations
In a significant legal move, New York is challenging Kalshi, a federally regulated prediction market operator, claiming that it engages in illegal gambling practices. Governor Kathy Hochul and Attorney General Letitia James announced on July 31, 2026, that the state has initiated a lawsuit against Kalshi, asserting the operator is unlawfully offering contracts on sports, elections, and other future events without the necessary gaming license from New York.
The lawsuit was filed in New York Supreme Court under Executive Law § 63(12), which authorizes the Attorney General to combat persistent fraud or illegal activities in business. The state's legal action seeks a permanent injunction against Kalshi's operations within New York, demands the company forfeit its alleged profits, compensate customers, provide an accounting of all wagers and losses, and pay civil penalties, potentially amounting to three times its reported illegal gains.
The lawsuit follows a broader crackdown by New York on prediction markets. In April 2026, Hochul signed an executive order prohibiting state employees from profiting off confidential government information through prediction trading. This order was part of a move to safeguard public trust and limit misuse of sensitive information as these new trading platforms become more widespread.
Hochul emphasized the need for adherence to gaming laws, stating, “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.” She stressed that this breach of law would lead to substantial repercussions.
James reinforced that merely labeling its products as prediction markets does not exempt Kalshi from compliance with state gambling regulations. “New York’s gambling laws protect children from underage betting and help combat gambling addiction,” she stated. “No matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple.”
Allegations Against Kalshi
The verified petition reveals that Kalshi began operating its prediction market platform in 2021 and made its foray into sports markets in January 2025. The company has branded these offerings as “legal sports markets, accessible to Americans in all 50 states.”
New York's legal stance is that the contracts Kalshi offers represent illegal gambling since customers are wagering money on uncertain future events outside their control, while Kalshi lacks a proper gaming license. The petition also highlights Kalshi's massive growth, estimating its business valuation at $22 billion and an annual transaction volume of $178 billion, suggesting that the company is sidestepping New York's stringent gambling regulations.
State lawyers assert that Kalshi has contravened several laws, including constitutional restrictions on unauthorized gambling, criminal gambling statutes, and specific provisions of New York's sports wagering laws. The state is requesting that the court permanently bar Kalshi from continuing its operations in New York, along with restitution and accountability measures for consumers.
Continued Regulatory Disregard
Evidence presented by the state includes an emergency affirmation from Investor Protection Bureau Chief Shamiso Maswoswe, alleging that New Yorkers remain at risk while Kalshi continues its operations. Maswoswe highlighted that the New York State Gaming Commission had pronounced a cease-and-desist order against Kalshi in October 2025, yet the platform persists in operating without adherence to state regulations.
“Respondent continues to operate its gambling platform from New York,” the affirmation states. New York is seeking immediate court intervention to prevent Kalshi from offering contracts related to sports, elections, or other events pending resolution of the lawsuit. The proposed restraining order would also bar any wagering by individuals under the age of 21 and restrict the company from marketing its platform during the litigation process.
The financial stakes are high; New York is estimating approximately $36 billion in the needed restitution and penalties, in addition to significant injunctive relief measures.
Broader Implications of the Lawsuit
This lawsuit exemplifies New York's growing scrutiny and regulation of prediction markets and similar financial platforms. Hochul's previous executive order was aimed at preventing misuse of insider information, indicating a commitment to creating a regulatory framework adaptable to new trading practices. Hochul remarked that profiting from inside information is a form of corruption and highlighted the importance of public officials prioritizing the public interest over personal gain.
Additionally, Senator Joseph Addabbo Jr. has put forward legislation to create a structured regulatory environment for prediction markets in New York, suggesting a need for coherence and legality in this emerging space. The current lawsuit represents New York’s most assertive action yet against Kalshi, demanding compliance and enforcing sanctions for violations—all contributing to a narrative of increasing regulation around this evolving market.
Featured image: Marc A. Hermann / MTA / CC BY 2.0 / Kalshi
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