CFTC Moves To Keep Kalshi Operating In New York

Key Highlights

The already contentious issue of prediction market legality intensified significantly in New York. On August 12, the Commodity Futures Trading Commission (CFTC) invoked emergency powers to keep Kalshi operational in the Empire State.

CFTC Steps Into New York’s Kalshi Fight

Like several other states embroiled in legal battles with prediction market operators, New York has been fighting to enforce its gambling laws against the federally-regulated exchanges. New York Attorney General Letitia James sued Kalshi on July 31, nearly one year after it issued the operator a cease-and-desist letter. 

In response, Kalshi asked the CFTC to intervene. The federal agency said New York’s legal action created a “market emergency.” 

“Over the past year, American prediction markets have been hit with an onslaught of state-led litigation,” CFTC chairman Michael Selig said in a video he posted to X on Tuesday. “The CFTC will no longer sit idly by while overzealous state governments undermine the agency’s exclusive jurisdiction over these markets by seeking to establish statewide prohibitions on these exciting products.”

New York Says Kalshi Is Illegal Gambling

New York’s lawsuit included a court order to stop Kalshi from operating what the state calls an illegal gambling business. New York also wants Kalshi to repay customers and pay financial penalties.

AG James and New York Governor Kathy Hochul argue that Kalshi’s prediction markets meet the state’s definition of gambling. Users place money on uncertain events that they can’t control.

The state also says Kalshi doesn’t have a license from the New York State Gaming Commission. Licensed gambling companies must follow state rules and pay taxes that support programs such as schools, youth sports, and problem gambling services.

Courts Could Decide Who Has Control

The crux of the prediction market issue is whether federal regulators or individual states have the authority to regulate gambling in New York. Prediction market exchanges aren’t overseen by New York regulators. The CFTC says federal law gives it exclusive authority over exchanges such as Kalshi, but New York contends that states can continue using their own laws to regulate gambling.

The dispute is part of a larger fight over prediction markets across the US. Minnesota recently tried to ban them completely, but a federal judge blocked that law while suggesting states may have some power to limit certain types of prediction-market wagers.

Kalshi has already faced a setback in court. On July 7, a federal judge rejected its request to block New York from enforcing its gambling laws. The judge said federal law doesn’t prevent every type of state regulation involving these markets.

Kalshi appealed that decision and is also trying to move New York’s lawsuit from state court to federal court.