Kalshi files federal lawsuit against New York regulators

Kalshi has filed a lawsuit against New York regulators, as the state is looking to classify its sports event contracts as unlicensed gambling and enforce a cease-and-desist order threatening civil and criminal penalties.

Kalshi filed the federal complaint on Oct. 27, noting that the New York State Gaming Commission’s cease-and-desist letter left the firm with “no other practical choice to protect its commercial interests and those of its users except to bring this suit.”

New York’s top gambling authority sent the event contract platform a formal cease and desist notice on Oct. 24, accusing it of operating illegal sports wagering services without a state license.

Kalshi argued that New York’s actions “threaten immediate and irreparable harm” not just to its platform, but also to its users and business partners.

By moving first with a federal filing, Kalshi may be looking to shift the legal battleground away from New York’s state courts, where the constitutional ban on sports gambling could have led to an almost “automatic loss,” according to Daniel Wallach, founder and principal of Wallach Legal LLC.

“Kalshi’s desperation to get this case filed in federal court ASAP likely stems from the fact that New York State has a constitutional-level prohibition against sports gambling — except through state-licensed casinos,” Wallach said in a recent X post.

Central to Kalshi’s claim is that the Commodity Exchange Act, along with its 1974 amendments, gives the CFTC “comprehensive authority over regulated exchanges,” and that Congress deliberately removed any provision that would allow states like New York to interfere in the regulation of futures trading.

By attempting to classify sports-event contracts as gambling and applying state gaming laws to a federally designated contract market, Kalshi stated that New York is stepping into a “field that Congress has preempted,” creating regulatory confusion while also undermining its federally approved business model.

With its lawsuit, Kalshi hopes to secure declaratory and injunctive relief against the New York State Gaming Commission similar to what it achieved in states like Nevada and New Jersey, where courts temporarily barred regulators from interfering with its federally regulated contracts while the case is resolved.

Judge Andrew P. Gordon of the U.S. District Court in Nevada has previously accepted Kalshi’s argument that federally regulated event contracts fall under the CFTC’s exclusive authority, but this approach has failed to gain traction in Maryland, where a judge ordered the platform to halt sports-event listings pending appeal.

Interestingly, crypto exchange Crypto.com failed to win similar protections over its sports event markets in Nevada, where a federal judge denied its request for an injunction and ordered it to geofence the state by early November.

Unlike in Kalshi’s case, where the judge focused on whether the contracts could technically qualify as swaps under the Commodity Exchange Act, the court ruled that Crypto.com’s offerings did not meet the statutory definition, leaving it vulnerable to state enforcement.

An injunctive relief in New York would give Kalshi temporary protection from state enforcement and allow it to continue offering its sports markets from Manhattan, where the company is headquartered.

As of Oct. 28, at least eight states, including Arizona, Illinois, Maryland, Montana, Nevada, New Jersey, Ohio, and now New York, have issued cease and desist or warning letters against Kalshi’s sports event markets. Among them, the company has filed lawsuits against Maryland, Nevada, New Jersey, and Ohio.

Kalshi draws VC interest despite legal challenges

Even as Kalshi continues to battle state regulators across the country, venture capitalists have shown little hesitation in backing the platform’s long-term vision.

Earlier this month, the company closed a $300 million funding round led by Andreessen Horowitz and Sequoia Capital, just months after it raised $185 million at a $2 billion valuation in a deal backed by Paradigm.

Since then, Kalshi has drawn fresh investor interest at valuations between $10 billion and $12 billion, according to people familiar with the discussions.