Kalshi, a prominent U.S. prediction market company, is facing intensifying legal conflicts with state regulators in Nevada and New York concerning its operations. The Commodity Futures Trading Commission (CFTC) has intervened, asserting federal jurisdiction over prediction markets.
What Happened
The legal landscape for prediction markets has escalated significantly, particularly for Kalshi, a major U.S. prediction market company (The New Republic). Nevada, a state with extensive experience in gambling regulation, had reportedly reached an agreement with Kalshi earlier this year. This agreement stipulated that Kalshi would implement geofencing to block Nevada residents from accessing its markets, in exchange for the state dropping its case against the company (The New Republic).
However, this agreement reportedly collapsed last week after investigators from the Nevada Gaming Control Board (NGCB) were able to bypass Kalshi’s geofencing services. Under the terms of the original agreement, Kalshi was obligated to pay Nevada $120,000 per day if it failed to implement an effective geofence by August 12 (The New Republic). Kalshi’s general counsel, Rick Heaslip, accused Nevada regulators of providing “falsified information (breaking federal law) to hunt for a loophole and manufacture another legal grievance,” and described the board’s actions as a “vindictive waste of taxpayer dollars at the bidding of casinos” (The New Republic).
The NGCB responded, stating that “Kalshi’s accusations are baseless, and they cannot obscure the fact that Kalshi missed its agreed-upon deadline to comply with Nevada law.” The board further noted that Kalshi’s “consistent failures to comply with the court orders left the board with no other choice but to advise the court of Kalshi’s noncompliance,” potentially leading to more punitive sanctions against the company (The New Republic).
Simultaneously, a significant legal challenge emerged in New York. State officials filed a lawsuit against Kalshi on July 31, alleging violations of New York’s gambling laws (The New Republic). New York law mandates that sports-betting companies obtain a state license and pay taxes on winnings (The New Republic). New York also accused Kalshi of violating the state’s age restrictions for sports betting by allowing individuals aged 18, 19, and 20 to place bets on its platforms (The New Republic).
New York Attorney General Letitia James stated, “No matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple.” She added that by “ignoring our laws, Kalshi is running an illegal operation and harming New Yorkers in the process” (The New Republic). Kalshi reportedly announced in January 2025 that it would accept bets on sports events, advertising its product as allowing users to “view live sports (and bet)” (The New Republic). The lawsuit claims that a Kalshi “sports contract” is functionally equivalent to a traditional sports bet for the average consumer, where a customer wagers on a binary outcome (The New Republic).
New York state officials initially issued a cease and desist order to Kalshi in October 2025 regarding its unlicensed sports gambling operations. Three days later, Kalshi sued the state to secure a preliminary injunction, which a federal district court in Manhattan denied last month (The New Republic). The state’s July 31 lawsuit seeks to recover all profits from the alleged unlawful sports betting operation, along with damages, totaling $36 billion in penalties (The New Republic).
Key Details
- Kalshi agreed to pay Nevada $120,000 per day if geofencing was not implemented by August 12 (The New Republic).
- Nevada Gaming Control Board investigators reportedly circumvented Kalshi’s geofencing services (The New Republic).
- New York’s lawsuit against Kalshi was filed on July 31, alleging violations of state gambling laws and age restrictions (The New Republic).
- New York is seeking $36 billion in penalties from Kalshi for alleged unlawful sports betting operations (The New Republic).
- The Commodity Futures Trading Commission (CFTC) has filed a separate lawsuit against New York in April, asserting its exclusive authority to regulate prediction markets under federal law (The New Republic).
- A federal district court in Connecticut reportedly ruled that Kalshi’s sports betting contracts do not fall under the Commodity Exchange Act (CEA), meaning the CFTC cannot override state gambling regulators (The New Republic).
- The CFTC has reportedly invoked Section 8a(9) of the Commodity Exchange Act three times in 2026, including an order for Kalshi to continue operations in New York despite state legal actions (The New Republic).
Why It Matters
The disputes highlight a significant regulatory conflict between state gambling authorities and federal financial regulators over the classification and oversight of prediction markets (The New Republic). States like New York and Nevada assert that prediction markets offering sports-related contracts function as illegal gambling operations without proper state licensing and compliance (The New Republic). Conversely, the Commodity Futures Trading Commission (CFTC) maintains that these markets are derivatives and fall under its exclusive federal jurisdiction (The New Republic).
The CFTC’s intervention, including its use of Section 8a(9) of the Commodity Exchange Act, a power rarely invoked historically, underscores the agency’s commitment to establish federal control over prediction markets (The New Republic). This jurisdictional dispute could significantly impact the operational framework for prediction market companies, potentially allowing them to operate nationwide with limited state oversight if the CFTC’s position prevails, or requiring them to adhere to a complex, state-by-state licensing regime otherwise (The New Republic).
Court rulings, such as the one in Connecticut, which determined that Kalshi’s contracts do not fall under the CEA, indicate judicial skepticism towards the CFTC’s broad jurisdictional claims (The New Republic). These ongoing legal battles are shaping the regulatory future of the prediction market industry in the United States, influencing how these platforms are categorized, licensed, and taxed (The New Republic).
What’s Next
The legal challenges against Kalshi are ongoing, with potential for further punitive sanctions in Nevada and the pursuit of $36 billion in penalties by New York (The New Republic). The Commodity Futures Trading Commission (CFTC) continues its lawsuits against states like New York, aiming to uphold its claim of exclusive federal authority over prediction markets (The New Republic). Judicial decisions, such as those in Connecticut and New York, indicate that courts are exercising independent judgment in interpreting statutory provisions, which could limit the CFTC’s ability to dictate orders that contradict state gambling laws (The New Republic).
Originally reported by The New RepublicPublished
Sources & References
Primary source
- The New Republicnewrepublic.com