CFTC orders Kalshi to continue New York operations after $36B suit

The U.S. Commodity Futures Trading Commission invoked emergency authority to order prediction market operator Kalshi to keep offering sports contracts in New York, overruling a state lawsuit that sought to shutter the platform and extract $36 billion in penalties.

"Congress did not intend for derivatives exchanges to be regulated under a patchwork of state gaming laws," CFTC Chairman Mike Selig said in a statement Tuesday. "New York has no business regulating these interstate financial markets."

New York Attorney General Letitia James sued Kalshi on July 31, alleging the platform violated state gambling laws by offering sports prediction markets without a license from the New York State Gaming Commission. The state sought a temporary restraining order, consumer restitution, disgorgement of profits and civil penalties of at least $36 billion, and alleged Kalshi exposed users under the state's legal gambling age of 21 to financial risk. Kalshi, which has seen annualized revenue exceed $4 billion, requested federal assistance after the lawsuit, warning that a "market emergency" could occur if the temporary restraining order took effect.

Federal vs. State Jurisdiction

The dispute turns on whether prediction markets are financial derivatives governed by federal law or gambling platforms subject to state licensing. Selig argued Kalshi's event contracts function as interstate financial products because trades match bidders across state lines and clear through federally regulated infrastructure. New York counters that Kalshi sidestepped taxes paid by licensed casinos and mobile sports betting operators, revenue that funds public schools, youth sports programs and problem-gambling services.

Kalshi has moved the case to federal court; New York has asked a judge to remand it to state court. A ruling is pending. The CFTC had previously sued New York over its stance on prediction markets, and has filed actions against Illinois, Arizona and Connecticut over the past year. In Michigan, a court ruled for the state and forced Kalshi to unwind trades despite the CFTC's attempt to intervene, a setback that shows the limits of federal authority when a state court acts first.

What's at Stake

The outcome could set a precedent for how states regulate federally licensed prediction platforms. A ruling for New York would create a patchwork of state restrictions that challenge the viability of platforms like Kalshi and Polymarket, both of which support CFTC oversight. Prediction market platforms have grown rapidly, reaching multi-billion-dollar valuations, and both companies back a single federal framework over state-by-state rules. In the Senate, lawmakers are weighing additions to the Clarity Act that would preserve state authority over sports betting and block prediction markets from entering that space, further complicating the regulatory picture. For Kalshi, the CFTC order provides temporary protection in New York, but the underlying question of whether prediction markets belong under federal derivatives regulation or state gambling laws remains unresolved.

This article is for informational purposes only and does not constitute investment advice.