Kalshi files a federal lawsuit against New York regulators

Kalshi has filed a lawsuit against New York regulators as the state seeks to classify his sporting events contracts as unlicensed gambling and enforce a cease and desist order, threatening civil and criminal penalties.

Kalshi submitted the federal complaint on Oct. 27, noting that the New York State Gaming Commission’s cease-and-desist letter left the company “no other practical option to protect its commercial interests and those of its users other than filing this lawsuit.”

New York’s top gambling authority has sent the event contracting platform a formal cease and desist order notification on Oct. 24, accusing the company of operating illegal sports betting without a state license.

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

By filing a federal application first, Kalshi may be seeking to shift the legal arena from New York state courts, where the constitutional ban on sports gambling could have led to an almost “automatic loss,” said Daniel Wallach, founder and principal of Wallach Legal LLC.

“Kalshi’s desperation to have this case filed in federal court as quickly as possible likely stems from the fact that New York State has a constitutional ban on sports gambling – except through state-licensed casinos,” Wallach said in a recent X after.

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 eliminated any provision that would allow states like New York to interfere with the regulation of futures trading.

By attempting to classify sporting event contracts as gambling and apply state gambling laws to a federally designated contract market, Kalshi stated that New York is entering a “field that Congress is pre-empting,” creating regulatory confusion while undermining the federally sanctioned business model.

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

U.S. District Court Judge Andrew P. Gordon in Nevada previously accepted Kalshi’s argument that federally regulated event contracts fall under the CFTC’s exclusive jurisdiction, but this approach has not gained traction in Maryland, where a judge ordered the platform to halt listings of sporting events pending the appeal.

Interestingly, crypto exchange Crypto.com failed to obtain similar protections for its sporting events markets in Nevada, where a federal judge denied his request for an injunction and ordered him to geofence the state in early November.

Unlike Kalshi casewhere the judge focused on whether the contracts could technically qualify as swaps under the Commodity Exchange Act, the court found that Crypto.com’s offering did not meet the legal definition, making it vulnerable to state enforcement.

A New York court order would provide Kalshi with temporary protection from state enforcement and allow the company to continue offering its sports markets from Manhattan, where the company is headquartered.

As of October 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 sporting events markets. The company has submitted an application among them lawsuits against Maryland, Nevada, New Jersey and Ohio.

Kalshi attracts VC interest despite legal challenges

Even as Kalshi battles 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 raising $185 million at a $2 billion valuation in a deal backed by Paradigm.

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