The Commodity Futures Trading Commission has ordered Kalshi to keep operating normally after New York filed a lawsuit seeking to shut the prediction market down and collect potentially more than $36 billion in damages. The federal regulator invoked its emergency authority on Aug. 11, escalating a dispute about whether prediction markets are gambling into a direct confrontation over whether Washington or individual states have the final say.
Kalshi triggered the intervention itself by notifying the CFTC that it considered New York’s lawsuit a market emergency. The Commission responded by directing the CFTC-regulated exchange to continue operating in accordance with the Commodity Exchange Act’s Core Principles, and CFTC spokeswoman Brooke Nethercott later summarized the practical instruction as telling Kalshi to “operate as normal” to preserve market stability.
The CFTC has not told Kalshi to defy an existing New York court order, whatever the shorthand suggests. Attorney General Letitia James is asking a court for a temporary restraining order that would stop Kalshi from offering event contracts, but no such order against the company exists yet. The federal instruction covers the period while New York is still trying to obtain one.
New York’s lawsuit, filed July 31, accuses Kalshi of running an unlicensed gambling business. In the state’s view, contracts on sports, elections, entertainment, and other uncertain events are wagers no matter what financial terminology is used to sell them. The complaint also objects to Kalshi accepting customers between 18 and 20 years old, since licensed mobile sports betting in New York is limited to people aged 21 and over.
The state wants disgorgement of Kalshi’s alleged illegal gains, restitution for customers, and civil penalties worth three times those gains, estimating the potential total at no less than $36 billion pending a full accounting. It is also seeking relief broad enough to stop Kalshi from offering event contracts nationwide rather than merely blocking New York residents, which is the part with wider consequences for the prediction-market industry.
CFTC Chairman Michael Selig argues that Kalshi operates a federally regulated derivatives exchange whose trades can match customers in different states, making a state-by-state licensing system incompatible with the market structure Congress established. The Commission maintains it has exclusive jurisdiction over contracts traded on designated contract markets, and it has now sued nine states, New York among them, over attempts to regulate those contracts through gambling law.
New York already holds an important preliminary ruling in the wider dispute. US District Judge Analisa Torres rejected Kalshi’s attempt in July to block the state from enforcing its gambling laws, finding the company had not shown it was likely to prove the Commodity Exchange Act preempted state law as applied to sports contracts. Federal courts elsewhere remain split on the same question, leaving both the states and the CFTC holding favorable decisions they can cite.
Michigan showed in July how far the federal-state collision can go. A court there ordered Kalshi to stop facilitating certain sports contracts and later instructed it to cancel and refund trades involving Michigan residents, at which point the CFTC stepped in, blocked Kalshi’s proposed rule for unwinding those positions, and ordered the exchange to fulfill the open trades through its normal process. Kalshi ended up facing one instruction from a state court and a contradictory one from its federal regulator, and the Aug. 11 action in New York looks designed to prevent the same situation from forming after a shutdown order is already in place.
New York sees sports and other event contracts as gambling products that should carry the same licenses, taxes, age limits, and consumer protections as sportsbooks. The CFTC sees a national derivatives exchange and argues that letting every state impose its own gambling rules would break the uniform federal market it is required to supervise. Neither position has moved throughout the procedural back-and-forth.
Kalshi stays open for now, and New Yorkers can keep using it while the litigation proceeds. The question ahead has grown past whether a sports prediction contract resembles a bet, a distinction that has so far required several courts and two levels of government. The next stage will decide whether a state can force a federally registered prediction exchange out of its market, and possibly whether New York’s gambling laws can threaten Kalshi’s business across the whole country.