tl;dr
Kalshi, a New York-based event-contract platform, sues New York regulators to block classification of its sports prediction markets as illegal gambling, citing federal jurisdiction under the CFTC. The case highlights tensions between emerging financial tech and traditional gambling frameworks, with ...
**Kalshi Files Federal Lawsuit Against New York Regulators Over Sports Prediction Markets**
Kalshi, a New York-based event-contract platform, has taken legal action against New York state regulators, filing a federal lawsuit to block the New York State Gaming Commission from classifying its sports prediction markets as illegal gambling. The move comes just weeks after rival Crypto.com faced a similar setback in Nevada, where a court ruled against its sports betting operations.
The lawsuit, filed in Manhattan, argues that federal law preempts state gambling regulations for contracts traded on platforms regulated by the Commodity Futures Trading Commission (CFTC). Kalshi received a cease-and-desist letter from the New York Gaming Commission on Friday, demanding it halt its sports-event contracts or risk civil penalties and criminal liability. The company’s legal team, led by Daniel Wallach of Wallach Legal LLC, emphasized that filing first was a strategic move to frame the case around federal jurisdiction rather than the legality of the contracts themselves.
“Most states require advance notice before suing businesses for repeated violations, and this notice served as a heads-up for Kalshi to act in federal court,” Wallach explained. By initiating the lawsuit, Kalshi aims to avoid state courts, where the focus would be on whether the contracts constitute illegal gambling, rather than jurisdictional questions.
### Legal Precedents and Mixed Outcomes
Kalshi has had a mixed legal record in recent months. It secured preliminary injunctions in New Jersey and Nevada, allowing it to continue operations temporarily, but a Maryland court ordered it to halt sports-event contracts. In Nevada, a judge initially ruled in Kalshi’s favor, but two weeks ago, U.S. District Judge Andrew P. Gordon denied a similar request from Crypto.com, marking a shift in judicial approach.
The key distinction lies in how courts interpret the Commodity Exchange Act (CEA). Kalshi successfully argued that its contracts qualify as “swaps” under federal law, which fall under the CFTC’s exclusive jurisdiction. However, in Crypto.com’s case, Judge Gordon ruled that sports event outcomes do not meet the CEA’s definition of a swap, as they depend on the occurrence of an event rather than a financial instrument.
“This hinges on congressional intent,” Wallach noted. Courts have determined that lawmakers never intended for the CFTC to regulate sports prediction markets, citing legislative history and statements from lawmakers. As a result, Crypto.com must geofence Nevada by November 3 and close all open sports-event positions for state residents pending its appeal.
### State Scrutiny and Future Battles
Wallach predicts that Arizona and Illinois—both of which have issued cease-and-desist letters to Kalshi—will soon join the legal fray. He also anticipates more states filing lawsuits against Kalshi, Robinhood, and Crypto.com in the coming months, as recent court decisions have increasingly favored state regulators.
The conflict underscores the tension between emerging financial technologies and traditional gambling frameworks. While Kalshi and its peers argue that their platforms operate as legal investment contracts, states contend they function as unlicensed betting operations. As the legal landscape evolves, the outcomes of these cases could set critical precedents for the future of prediction markets in the U.S.
For now, Kalshi’s federal lawsuit represents a bold effort to redefine the regulatory boundaries of sports prediction markets, with implications that extend far beyond New York.