Kalshi Sues New York Regulator in $500 M Prediction Market Dispute
Kalshi Inc., the federally regulated exchange for event contracts, has taken a big step—it's filed a federal lawsuit against...
Quick overview
- Kalshi Inc. has filed a federal lawsuit against the New York State Gaming Commission to challenge the state's classification of its prediction markets as illegal gambling.
- The lawsuit follows a cease-and-desist order from the commission and argues that federal jurisdiction under the Commodity Exchange Act preempts state gambling laws.
- The outcome of this case could significantly impact the regulation of the US prediction market industry, potentially favoring federal oversight over state restrictions.
- Other states are also taking action against prediction-market operators, indicating a growing trend of state regulators asserting authority over perceived unregulated wagering.
Kalshi Inc., the federally regulated exchange for event contracts, has taken a big step—it’s filed a federal lawsuit against the New York State Gaming Commission, in an effort to stop the state from treating its prediction markets as some backroom gamble—basically illegal. The filing, made in Manhattan on October 28, follows a cease-and-desist letter issued on October 24, ordering the firm to stop offering sports-event contracts or face penalties.
Kalshi argues that under the Commodity Exchange Act (CEA), the Commodity Futures Trading Commission (CFTC) has exclusive jurisdiction over its contracts, effectively preempting state gambling laws.
Federal vs. State Jurisdiction Battle
The case intensifies an ongoing conflict between state regulators and federal commodities authorities over who controls the fast-growing prediction-markets industry. The lawsuit also follows Crypto.com US: Securely Buy, Sell and Trade Bitcoin, Ethereum and 400+ Crypto ‘s recent loss in Nevada, where a court ruled that sports outcomes don’t meet the definition of “swaps” under federal law.
Legal analyst Daniel Wallach said Kalshi’s legal move allows it to “frame the case narrowly around federal preemption” and to avoid the state court system, which often favors local regulators.
Key Legal Milestones
- Cease-and-desist issued: October 24 by New York Gaming Commission
- Federal lawsuit filed: October 28 in Manhattan
- CFTC oversight cited: Federal jurisdiction under CEA
Potential Market Implications
A lot rides on this outcome: it could have a major impact on how the entire US prediction market industry is regulated. If Kalshi comes out on top, well then that would mean the CFTC’s rules get to stick, and that’d protect all those regulated platforms from getting strangled by state-level restrictions on gambling. However, a loss could pave the way for tighter state intervention and increased compliance costs.
Other states, including Arizona and Illinois, have also issued cease-and-desist orders to prediction-market operators. Wallach noted that regulators “are increasingly asserting authority over what they view as unregulated wagering,” a trend that may soon draw in other fintech platforms such as Robinhood.
Kalshi’s predicament at the moment is one of the really critical tests of whether the feds’ innovative frameworks can coexist with state laws governing gaming—a decision that’s going to shape the industry’s boundaries for a long, long time to come.
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