New York Attorney General Letitia James has asked a Manhattan state court to permanently block Kalshi, a federally regulated exchange, from offering sports wagering to New Yorkers without a state license. The verified petition, filed July 31, alleges the company's sports contracts violate New York's constitutional gambling ban and multiple state and federal laws.
The state's demands
The petition seeks to force Kalshi to identify affected customers, itemize their wagers and losses, and detail the company's gains from the alleged unauthorized offers. New York is asking for customer restitution, damages, disgorgement of profits, prejudgment interest, costs, and penalties. Those penalties include three times Kalshi's alleged gains plus $100,000 for each unauthorized offer. The court has not yet found Kalshi liable, and no adjudicated gain figure or count of offers has been provided.
Why New York says the bets are illegal
James brought the case under Executive Law Section 63(12), which targets repeated or persistent illegality. The petition alleges violations of New York's constitutional prohibition on gambling, three state Penal Law provisions, three Racing Law provisions, and the federal Wire Act. The state argues that Kalshi's sports contracts amount to unlicensed gambling, not legitimate financial trading.
A history of regulatory friction
The lawsuit follows an October 2025 cease-and-desist demand from the New York State Gaming Commission. Kalshi responded by suing state officials in federal court, arguing that federal law preempts state gambling restrictions. On July 7, the U.S. District Court for the Southern District of New York denied Kalshi's request for temporary and preliminary protection from state enforcement. That ruling was an interim decision, not a final judgment on Kalshi's preemption claims. Kalshi filed an interlocutory appeal the next day.
Kalshi's defense
Kalshi spokesperson Elisabeth Diana called the lawsuit 'political theater.' She said states cannot shut down a federally licensed exchange. The company, which reports a $22 billion valuation and $178 billion in annualized transaction volume, maintains that its contracts are legal under federal commodities law. Those figures are company-reported and not audited by New York.
The unresolved appeal
The Manhattan court has not yet ruled on the permanent injunction request. Kalshi's interlocutory appeal is pending in the Second Circuit, leaving the question of federal preemption unresolved. Until a final decision, New Yorkers can still access Kalshi's sports contracts, but the state is pushing to stop that immediately.
