# New York Sues Kalshi to Crush Prediction Markets, Protect Its Cut > Source: > Published: 2026-07-31 18:40:46+00:00 New York is suing federally licensed prediction market Kalshi for running an "illegal gambling operation" — which means the state is moving to crush a platform that lets ordinary Americans trade on outcomes without paying the house its cut or the state its tax. Governor Kathy Hochul and Attorney General Letitia James announced the lawsuit Friday in Manhattan state court. The suit demands Kalshi forfeit its profits, pay restitution to users, face $100,000 penalties for each sports wagering offering, and pay fines equal to three times what it earned while allegedly violating New York law. James, who filed a similar suit against Coinbase and Gemini in April, didn't mince words: "No matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple." Plain and simple — except it isn't. Kalshi operates under a federal license from the Commodity Futures Trading Commission. Users trade against each other, not against the house, and the platform takes a fee — much like a stock exchange. That's the company's argument, and federal law backs the CFTC as the exclusive regulator of these contracts. The Guardian framed the dispute around consumer protection and underage betting, noting that Kalshi allows 18- to 20-year-olds to trade while New York requires mobile sports bettors to be 21. CNBC buried the age issue and led with the jurisdictional fight. What neither outlet dwelled on is the money: regulated gambling in New York funds "public schools, youth sports programs and problem gambling prevention and treatment," as The Guardian noted in passing. The state isn't just protecting consumers — it's protecting a revenue stream. Kalshi spokesperson Elisabeth Diana pushed back hard: "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. This would also hurt New Yorkers, who would be driven offshore." She has a point. Kalshi sued New York last October after the state's Gaming Commission sent a cease-and-desist letter. A Southern District of New York judge denied Kalshi's request for a preliminary injunction against the commission earlier this month, and denied an injunction pending appeal. But the CFTC then filed for a temporary restraining order against New York's enforcement actions just before the state lawsuit dropped, and separately sued New York in April seeking a permanent injunction. In February, Trump's CFTC chief declared the agency "will no longer sit idly by" while states try to "undermine the agency's exclusive jurisdiction." Meanwhile, 44 state attorneys general sent a letter to the CFTC on Monday insisting the commission has no authority over sports-related event contracts. Arizona's AG filed criminal charges against Kalshi in April for election betting. But a federal judge just temporarily blocked Minnesota's first-in-the-nation prediction market ban — a setback for the state crackdown crowd. The core fight is jurisdiction and money. States claim most prediction market volume is sports betting, which they regulate and tax. The platforms and the CFTC say these are swaps, federally regulated, full stop. If Kalshi's contracts are futures, New York doesn't get a dime. If they're gambling, the state gets its cut and its control. The question no one in power wants to answer: why should Americans need permission from Albany to trade their own money on outcomes — when Wall Street does the same thing every day and calls it derivatives?