Event-based
contracts platform Kalshi filed a federal lawsuit this week against New York’s
gaming regulator, hours after receiving a cease-and-desist order that
threatened criminal prosecution and civil penalties for offering sports-related
prediction markets in the state.
The
Manhattan-based company asked the U.S. District Court for the Southern District
of New York to block enforcement of state gaming laws, claiming New York has no
authority over its federally regulated exchange . The lawsuit names the New York
State Gaming Commission and its executive director Robert Williams, along with
seven commissioners.
Kalshi
operates as a designated contract market under the Commodity Futures Trading
Commission (CFTC ), which the company says gives it federal protection from
state gambling regulators. The platform lets users trade positions on future
events, including sports outcomes like NCAA tournament brackets and golf
championships.
The Gaming
Commission sent its order Friday evening, listing 20 sports contracts it deemed
unlawful and demanding the platform “cease and desist immediately”
from offering sports wagering without a state license. The agency warned it
could “levy and collect civil penalties and fines” for violations of
New York’s Racing Law and threatened potential criminal charges under state
penal statutes.
“The
Gaming Commission’s cease-and-desist letter, sent on a Friday evening, demands
that Kalshi immediately cease operating in New York or face criminal and civil
liability,” the company said in its complaint. Kalshi argued it had no
choice but to sue because contracts were set to trade over the weekend.
Federal Courts Split on
Jurisdiction
Kalshi won
preliminary injunctions in Nevada and New Jersey earlier this year, with judges
in both states agreeing that federal law likely preempts state gambling
regulations for CFTC-approved exchanges. A Nevada judge wrote in April that
“because Kalshi is a CFTC-designated DCM, it is subject to the CFTC’s
exclusive jurisdiction and state law is field preempted.”
But the
company lost in Maryland in August when a federal judge denied its request to
block state regulators there. That case is now on appeal.
The New
Jersey case has also moved to the Third Circuit after state officials appealed
their preliminary loss. Kalshi faces similar legal battles in Ohio and faces a
lawsuit brought by Massachusetts regulators.
The company
points to a 1974 statute that gave the CFTC “exclusive jurisdiction”
over derivatives trading on approved exchanges. Congress wanted to avoid what
one senator called the “total chaos” of subjecting exchanges to 51
different state regulatory schemes, according to legislative history cited in
the complaint.
Pressure Builds on Federal
Regulator
The lawsuit
comes as the CFTC faces growing criticism from lawmakers over its handling of
sports event contracts. Six senators, led by Catherine Cortez Masto of Nevada
and John Curtis of Utah, sent a letter to acting CFTC Chair Caroline Pham in
September complaining that the agency is “implicitly permitting sports
gaming products that are regulated by states and tribes.”
The CFTC
can review event contracts involving “gaming” under a provision of
the Commodity Exchange Act, but hasn’t initiated reviews of any of Kalshi’s
sports contracts. The agency told a federal appeals court last year that
“due to federal preemption, event contracts never violate state law when
they are traded on a DCM.”
Kalshi
began offering sports contracts in January after self-certifying them under
CFTC rules. The platform allows users 18 and older to trade, while New York
requires sports bettors to be 21. The company lacks some safeguards required of
state-licensed sportsbooks, including responsible gaming tools and anti-money
laundering controls, according to the American Gaming Association.
Critics
warn that letting event contracts circumvent state oversight could undermine
decades of state and tribal authority over gambling. A group of 36 state
attorneys general filed a brief earlier this year warning that
“eliminating the States’ ability to regulate online sports betting would
pose very serious risks to the States’ citizens.”
Business at Stake
Kalshi
argues in its complaint that complying with New York’s order would
“threaten Kalshi’s viability and require devising complex technological
solutions whose feasibility is entirely untested and unclear.” Blocking
New York users from certain contracts could also violate CFTC rules requiring
exchanges to operate nationally, potentially jeopardizing its federal approval.
The
platform claims shutting down operations in New York would cause
“immediate and irreparable harm” to the company, its customers and
business partners. New York is home to Kalshi’s headquarters and represents a
major market for event contracts.
Similar
platforms have filed their own federal lawsuits claiming state overreach.
Robinhood Markets and Crypto.com both sued state regulators over attempts to
block event contract offerings, though a Nevada judge denied Crypto.com’s
injunction request earlier this month.
The case
will likely turn on whether judges view Kalshi’s sports contracts as
derivatives subject to exclusive CFTC oversight or as gambling products that
states have traditionally regulated. With multiple federal courts already
weighing in differently, the dispute could eventually reach appellate courts or
the Supreme Court.
Event-based
contracts platform Kalshi filed a federal lawsuit this week against New York’s
gaming regulator, hours after receiving a cease-and-desist order that
threatened criminal prosecution and civil penalties for offering sports-related
prediction markets in the state.
The
Manhattan-based company asked the U.S. District Court for the Southern District
of New York to block enforcement of state gaming laws, claiming New York has no
authority over its federally regulated exchange . The lawsuit names the New York
State Gaming Commission and its executive director Robert Williams, along with
seven commissioners.
Kalshi
operates as a designated contract market under the Commodity Futures Trading
Commission (CFTC ), which the company says gives it federal protection from
state gambling regulators. The platform lets users trade positions on future
events, including sports outcomes like NCAA tournament brackets and golf
championships.
The Gaming
Commission sent its order Friday evening, listing 20 sports contracts it deemed
unlawful and demanding the platform “cease and desist immediately”
from offering sports wagering without a state license. The agency warned it
could “levy and collect civil penalties and fines” for violations of
New York’s Racing Law and threatened potential criminal charges under state
penal statutes.
“The
Gaming Commission’s cease-and-desist letter, sent on a Friday evening, demands
that Kalshi immediately cease operating in New York or face criminal and civil
liability,” the company said in its complaint. Kalshi argued it had no
choice but to sue because contracts were set to trade over the weekend.
Federal Courts Split on
Jurisdiction
Kalshi won
preliminary injunctions in Nevada and New Jersey earlier this year, with judges
in both states agreeing that federal law likely preempts state gambling
regulations for CFTC-approved exchanges. A Nevada judge wrote in April that
“because Kalshi is a CFTC-designated DCM, it is subject to the CFTC’s
exclusive jurisdiction and state law is field preempted.”
But the
company lost in Maryland in August when a federal judge denied its request to
block state regulators there. That case is now on appeal.
The New
Jersey case has also moved to the Third Circuit after state officials appealed
their preliminary loss. Kalshi faces similar legal battles in Ohio and faces a
lawsuit brought by Massachusetts regulators.
The company
points to a 1974 statute that gave the CFTC “exclusive jurisdiction”
over derivatives trading on approved exchanges. Congress wanted to avoid what
one senator called the “total chaos” of subjecting exchanges to 51
different state regulatory schemes, according to legislative history cited in
the complaint.
Pressure Builds on Federal
Regulator
The lawsuit
comes as the CFTC faces growing criticism from lawmakers over its handling of
sports event contracts. Six senators, led by Catherine Cortez Masto of Nevada
and John Curtis of Utah, sent a letter to acting CFTC Chair Caroline Pham in
September complaining that the agency is “implicitly permitting sports
gaming products that are regulated by states and tribes.”
The CFTC
can review event contracts involving “gaming” under a provision of
the Commodity Exchange Act, but hasn’t initiated reviews of any of Kalshi’s
sports contracts. The agency told a federal appeals court last year that
“due to federal preemption, event contracts never violate state law when
they are traded on a DCM.”
Kalshi
began offering sports contracts in January after self-certifying them under
CFTC rules. The platform allows users 18 and older to trade, while New York
requires sports bettors to be 21. The company lacks some safeguards required of
state-licensed sportsbooks, including responsible gaming tools and anti-money
laundering controls, according to the American Gaming Association.
Critics
warn that letting event contracts circumvent state oversight could undermine
decades of state and tribal authority over gambling. A group of 36 state
attorneys general filed a brief earlier this year warning that
“eliminating the States’ ability to regulate online sports betting would
pose very serious risks to the States’ citizens.”
Business at Stake
Kalshi
argues in its complaint that complying with New York’s order would
“threaten Kalshi’s viability and require devising complex technological
solutions whose feasibility is entirely untested and unclear.” Blocking
New York users from certain contracts could also violate CFTC rules requiring
exchanges to operate nationally, potentially jeopardizing its federal approval.
The
platform claims shutting down operations in New York would cause
“immediate and irreparable harm” to the company, its customers and
business partners. New York is home to Kalshi’s headquarters and represents a
major market for event contracts.
Similar
platforms have filed their own federal lawsuits claiming state overreach.
Robinhood Markets and Crypto.com both sued state regulators over attempts to
block event contract offerings, though a Nevada judge denied Crypto.com’s
injunction request earlier this month.
The case
will likely turn on whether judges view Kalshi’s sports contracts as
derivatives subject to exclusive CFTC oversight or as gambling products that
states have traditionally regulated. With multiple federal courts already
weighing in differently, the dispute could eventually reach appellate courts or
the Supreme Court.
