New York Sues Kalshi for $36 Billion, Calling Its Event Contracts an Illegal Gambling Operation

New York has escalated from defending its gambling laws to trying to collect on them. Governor Kathy Hochul and Attorney General Letitia James announced on July 31 that the state has sued KalshiEX for running an unlicensed gambling operation, seeking a package of penalties the state estimates could reach $36 billion. It is among the largest enforcement claims ever brought against a US financial technology company.

The arithmetic behind the number is what makes it aggressive. The suit asks for full restitution to every New York user who placed a trade on the platform, a $100,000 penalty for each instance in which Kalshi offered a sports wager, and treble damages on the amount the company gained while allegedly operating in violation of state law. The $36 billion is the state's own estimate before a full accounting of Kalshi's profits, which means the figure could move in either direction once discovery establishes what the exchange actually earned from New York residents.

Kalshi's defence is the one it has run everywhere: its event contracts are federally regulated derivatives under the exclusive jurisdiction of the Commodity Futures Trading Commission, not gambling products subject to state law. That argument is not going well in this jurisdiction. On July 7, US District Judge Analisa Torres denied Kalshi's request for a preliminary injunction against New York, holding that state gambling law reaches its sports-related event contracts and is not preempted by the Commodity Exchange Act, and characterising the company's asserted harms as compensable rather than irreparable. Kalshi appealed to the Second Circuit. The state waited three weeks and then filed for damages.

The federal counterweight

The preemption fight is live on a second front, and there Kalshi has a powerful ally. The CFTC itself sued New York in April to stop the state applying its gambling statutes to prediction markets, so the state and the federal regulator are now suing each other over the same question from opposite directions. CFTC Chairman Michael Selig criticised James and New York publicly after the filing, and the agency's position is that the contracts fall within its exclusive remit. If the courts agree, New York's $36 billion claim collapses regardless of how the gambling analysis reads.

That leaves an unusual posture for an operator: simultaneously encouraged by its federal regulator and pursued for billions by a state attorney general. It also sharpens the exposure already visible in Nevada's contempt fight, which Kalshi settled by hiring GeoComply under an August 12 deadline, in Kentucky's suit against Kalshi, Polymarket and VGW, and in the widening split among state courts.

Sports franchises are moving the other way

The commercial market is not waiting for the law to settle. One day before the lawsuit, the New York Mets signed a multi-year commercial partnership with prediction market operator Novig, the first deal between a Major League Baseball franchise and a prediction market exchange. It followed a first-of-its-kind memorandum of understanding between the CFTC and MLB in April aimed at protecting baseball markets from what Selig described as "fraud, manipulation, and other abuses."

The Mets' owner has money on both sides of the regulatory line. Steve Cohen holds a downstate New York casino licence through Metropolitan Park, an $8.1 billion joint venture with Hard Rock International that will include roughly 286,000 square feet of gaming space and an 18,000 square foot retail sportsbook, a project already dogged by construction delay reports. Cohen is also a close ally of Hochul, the governor now suing a rival exchange.

Matt Bakowicz, who directs the sports business management track at American University's Kogod School of Business and previously oversaw DraftKings Sportsbook and Racebook operations at Foxwoods, does not read that as contradiction. "I do not necessarily view Cohen's approach as mixed messaging. I see it as an owner pursuing multiple long-term business strategies that operate under different regulatory frameworks," he told iGaming Business. He added that prediction markets draw scrutiny because they "sit somewhere between finance, gaming, and fan engagement. That makes them attractive to teams, but it also explains why regulators are watching them closely."

What it means commercially

For affiliates and partners sending traffic to event contracts, New York is now the most expensive US jurisdiction to get wrong. The state is seeking per-instance penalties on sports wagers offered, which prices exposure by volume of activity rather than by revenue, and it is pursuing restitution for users rather than only fines. Marketing that reaches New York residents feeds the count the state is trying to build.

The politics around the case are not incidental. James has clashed with President Donald Trump repeatedly, most prominently through the asset-inflation investigation of the Trump Organization that produced more than $400 million in fines before an appellate court upheld liability and voided the penalties as excessive. A federal grand jury indicted James in October 2025 on bank fraud, and a Virginia judge dismissed the case weeks later, with her attorneys calling it political retribution. Donald Trump Jr. sits on the boards of both Kalshi and Polymarket, and Selig has rejected any suggestion that creates a conflict of interest. None of that changes the legal test, and it guarantees the case will be read through a political lens by everyone involved. Kalshi has not said whether it will seek to move the action to federal court.