New York has intensified its dispute with prediction market operator Kalshi, filing a lawsuit that seeks billions of dollars in penalties and alleging that the company has been running an unlicensed gambling business in the state.

Governor Kathy Hochul and Attorney General Letitia James announced the legal action against KalshiEX, LLC, arguing that the company’s prediction market offerings fall within New York’s legal definition of gambling. State officials contend that Kalshi has operated without obtaining the licenses required under New York law while offering users the opportunity to wager on future events, including sports contests.

The lawsuit follows a lengthy legal battle between the company and state regulators that began in 2025. It also triggered a political dispute after Nassau County Executive and Republican gubernatorial candidate Bruce Blakeman criticized Hochul’s decision to pursue the case, claiming the state had passed up a significant revenue opportunity.

According to court filings, New York is seeking approximately $36 billion through a combination of damages, restitution, disgorgement of profits, and statutory penalties.

State officials maintain that Kalshi’s activities constitute gambling because users place money on uncertain future outcomes that remain outside their control.

“What Kalshi offers through its Platform is quintessentially gambling: it allows a bettor to stake or risk money upon the outcome of a contest of chance or a future contingent event not under the bettor’s control or influence, upon an agreement or understanding that he will receive something of value in the event of a certain outcome,” the lawsuit states.

The filing further argues that “The outcome of Kalshi’s contracts depends to a material degree upon an element of chance, which in fact predominates over any skill of the bettor, notwithstanding that the skill of the bettor may also be a factor.”

State Officials Cite Consumer Protection Concerns

New York officials have framed the lawsuit as an effort to enforce gambling laws and address what they describe as consumer protection risks.

“Kalshi has chosen to ignore New York’s gaming laws, which exist to protect consumers, prevent problematic gambling, deliver funding for critical public services, and ensure that every company plays by the same rules,” Governor Hochul said. “This choice has consequences, and working closely with Attorney General James, New York is taking action to stop this illegal behavior and bring Kalshi into compliance, because no company is above the law.”

Attorney General James echoed those concerns while emphasizing the state’s position that prediction markets function as gambling products.

“New York’s gambling laws protect children from underage betting and help combat gambling addiction,” said Attorney General James. “No matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple. By ignoring our laws, Kalshi is running an illegal operation and harming New Yorkers in the process. We are taking them to court to uphold our laws and protect New Yorkers.”

The Office of the Attorney General stated that its investigation found Kalshi had marketed sports-related contracts since at least January 2025. Officials also highlighted that individuals between the ages of 18 and 20 can access Kalshi’s platform, while New York law requires sports bettors to be at least 21 years old.

According to the state, regulated gambling taxes help support public schools, youth sports initiatives, and problem gambling education and treatment programs. The lawsuit argues that Kalshi avoided tax obligations that licensed gaming operators must meet.

Political Dispute Emerges Over Revenue Potential

The legal action quickly became a point of disagreement between state officials and political opponents.

Blakeman argued that New York should have explored a financial arrangement with Kalshi rather than pursuing litigation.

“Kathy Hochul is truly the worst governor in America,” Blakeman said in a statement. “Hochul just walked away from a lucrative settlement with Kalshi, a popular commodity predictor site. Hochul left billions on the table that could have been used to cut taxes, hire cops and invest in education.”

He added: “No wonder New York is last in economic outlook in America. I will stop Hochul’s economic death spiral that has made it unaffordable to live and work in New York.”

Reports cited by Blakeman indicated that Kalshi had proposed an arrangement similar to one reached in North Carolina, involving a 6% tax on prediction market trades. He argued that such a deal could have generated substantial tax revenue over several years.

Hochul’s office rejected those criticisms and defended the lawsuit.

“Kalshi came to New York, blatantly violated state law, knowingly took actions that put consumers — including minors — at risk, and deprived New Yorkers of billions in revenue dedicated to critical programs like education,” spokesman Sean Butler said in a statement.

“Weak attempts to self-regulate are meaningless,” Butler said. “If a company willfully violates state law, they must face consequences.”

Ongoing Court Battle Continues

The latest lawsuit follows previous efforts by New York regulators to stop Kalshi’s operations. The New York State Gaming Commission issued a cease-and-desist order to the company in October 2025, prompting Kalshi to challenge the action in court.

A recent court decision denied Kalshi’s request for an injunction pending appeal, opening the door for the attorney general’s office to proceed with its new case. State officials filed the lawsuit immediately after that ruling.

The lawsuit seeks forfeiture of alleged illegal gains, restitution for consumers, and penalties equal to three times the profits New York believes Kalshi earned from its activities in the state. It also requests fines of $100,000 for each unauthorized sports wagering offering.

Kalshi continues to argue that its operations fall under federal oversight through the Commodity Futures Trading Commission (CFTC). The company maintains that states lack authority to shut down a federally regulated exchange.

A spokesperson for Kalshi said: “States can’t just shut down a federally licensed exchange … We love New York, we love New Yorkers, and New Yorkers love our product.”

The company also pushed back publicly against state officials’ actions. “It’s sad to see this type of political theater from the leadership in our own state,” Elisabeth Diana, a spokeswoman for Kalshi, said.

The dispute now moves forward in court, where the outcome could influence the ongoing debate over the regulation of prediction markets and their relationship to state gambling laws.