New York State Attorney General Letitia James is escalating a high-stakes jurisdictional battle over prediction markets by demanding at least $36 billion from Kalshi and seeking to shut the platform down entirely. The move puts the CFTC and individual states on a direct collision course over who gets to regulate event contracts — a question that will likely require congressional intervention or Supreme Court clarity to resolve.
James filed the action in state court on Friday, alleging Kalshi operates as an unlicensed gambling business in violation of New York law across eight separate counts. The claims range from breaching the state constitution’s gambling prohibition to bookmaking, maintaining illegal gambling records, and operating unlicensed mobile sports wagering. The attorney general also seeks $100,000 in penalties for each sports wagering offer, plus full restitution and asset disgorgement.
The Federal CFTC Steps In First
The battle’s timing reveals the depth of the regulatory split. The CFTC moved first in April, suing New York directly to establish that federal law grants the agency sole authority over event contracts. On Thursday — a day before James filed her action — the CFTC asked the federal court handling that case for a restraining order that would bar New York from enforcing anything against Kalshi or any other CFTC-registered platform.
New York ignored that request and filed anyway. This is no small act of defiance. It signals that at least one major state is willing to litigate this fundamental question of regulatory authority rather than cede control to Washington.
According to reporting by Decrypt, investigators conducting undercover enforcement tested Kalshi’s compliance by placing bets on college sports — including a $1.14 wager (including fees) on Connecticut to beat Michigan in April. The petition alleges Kalshi allows 18-year-olds to open accounts when New York law sets the minimum age at 21, and offers markets on games involving New York college teams — a category explicitly off-limits even to state-licensed operators.
Kalshi’s Losing Streak in Court
Kalshi has fared poorly in nearly every jurisdiction where states have fought back. The platform sued the New York State Gaming Commission last October seeking relief, was denied a preliminary injunction on July 7, and was rejected again on appeal on July 27. A Michigan judge restrained the platform in June. Washington State secured a preliminary injunction on July 20 through King County Superior Court.
The platform’s only meaningful victories have come from the Third Circuit Court of Appeals, which upheld an injunction against New Jersey in April, and from Minnesota, where a federal judge blocked the state’s ban on July 27. That Minnesota ruling hinged on whether event contracts qualify as “swaps” under the Commodity Exchange Act — a technical question with major implications. Judge Katherine Menendez found that many do, though she flagged sports and pop-culture markets as genuinely ambiguous cases.
A Broader Trump Administration Campaign
New York’s enforcement action is the latest volley in what has become a coordinated federal campaign. The CFTC has sued Illinois, Arizona, and Connecticut over their attempts to regulate event contracts, added Wisconsin to its litigation docket, and moved against Minnesota within hours of the state’s prediction market ban taking effect.
President Trump has personally backed the agency’s position, calling state officials who oppose prediction markets “SCUM” — unusually blunt language for a sitting president weighing in on a regulatory dispute. That explicit endorsement suggests the White House views this as more than a technical turf war.
Kalshi itself claims a $22 billion valuation and annualized trading volume of $178 billion, according to figures quoted in James’s petition. Those numbers will matter significantly if the state prevails: they establish the baseline for calculating treble damages under the state’s enforcement framework. The $36 billion figure James cites appears calibrated to roughly triple Kalshi’s claimed annual trading volume, a common damages calculation in commercial litigation.
What’s at Stake
This clash exposes a genuine gap in American financial regulation. The CFTC, created in 1974 to oversee futures and derivatives, lacks explicit statutory language addressing prediction markets or event contracts as distinct instruments. Congress never imagined platforms would let millions of retail users bet on elections, sports, and cultural events in the way Kalshi does.
States, invoking their traditional police powers over gambling, argue they have every right to protect their citizens from unlicensed wagering. The CFTC argues that modern financial markets require uniform federal oversight. Both positions have merit, but the conflict cannot be resolved at the regulatory level. Resolution will require either Congress to act or the courts to draw a clear constitutional line.
New York’s willingness to pursue a $36 billion claim against a CFTC-registered platform suggests the state believes it has legal grounds to win. Whether that confidence is justified will shape not just Kalshi’s future, but the entire regulatory future of American prediction markets.