The fight over who governs prediction markets now reaches Canadian investors
New York's attorney general is trying to shut down prediction market platform Kalshi and recover as much as US$36bn, a figure that tops the company's reported US$22bn valuation.
Attorney General Letitia James filed the petition in a state court in Manhattan on Friday, arguing that Kalshi runs an illegal gambling operation without a New York State Gaming Commission licence, Reuters reported.
State officials told the court that fines, restitution and costs could reach US$36bn "at minimum" pending an accounting, according to the same report.
CNBC reported that the suit seeks a permanent injunction, full restitution to users who traded on the platform, a US$100,000 penalty for each attempt to offer sports wagering, and a further penalty of three times the company's alleged illegal gains.
James's petition contends that Kalshi's users bet on outcomes they cannot control, from the Super Bowl winner to the result of the reality show 'Big Brother,' Reuters reported.
The state went further than sports, CNBC reported, alleging that Kalshi's election, culture and other event contracts also breach New York law.
The platforms can fuel problem gambling, including among people under 21, and threaten users' financial, emotional and physical wellbeing, James said, per Reuters.
She also objected to Kalshi letting 18- to 20-year-olds trade, below the 21 minimum New York sets for mobile sports betting.
"No matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple," James said in a statement carried by Reuters.
New York Governor Kathy Hochul said Kalshi chose to ignore state gaming laws meant to protect consumers and fund public services, warning, "This choice has consequences."
The suit deepens a national fight over who regulates prediction markets, states or Washington.
The US Commodity Futures Trading Commission claims exclusive oversight and has challenged state action in at least nine states, suing New York in April, Reuters reported.
On the afternoon James filed, the CFTC asked two federal judges to merge the state's case with its own and to stop New York from putting a CFTC-designated contract market out of business.
According to CNBC, the agency had already sought a temporary restraining order against New York's enforcement just before the state announced its suit.
"Rather than seek reasoned answers from the courts, Letitia James and New York seek to force an unprecedented sudden shutdown of prediction markets nationwide," CFTC Chairman Michael Selig wrote on X.
The classification of the contracts sits at the centre of the dispute: Kalshi, rival platforms and the CFTC treat event contracts as swaps under exclusive federal oversight, while many states view the sports offerings as sports betting they regulate, CNBC reported.
On Monday, 44 state attorneys general wrote to the CFTC arguing it has no authority over sports-related event contracts, part of the comment period on the agency's first draft of prediction-market rules.
Kalshi, based in New York City, said it was disappointed and moved to shift the case to Manhattan federal court eight hours after James filed, according to Reuters.
A Kalshi spokesperson told CNBC that states "can't just shut down a federally licensed exchange."
The spokesperson called New York's move "political theater" and said New Yorkers "love our product."
Kalshi board member Brian Quintenz called the move "an unhinged, and extraordinarily egregious piece of lawfare" in a CNBC appearance, describing it as state overreach.
The litigation predates Friday's filing.
Kalshi sued New York last October after the state Gaming Commission issued a cease-and-desist letter, Reuters reported.
US District Judge Analisa Torres refused to grant the company an injunction against the state on July 8, finding that New York's interest in curbing gambling addiction and protecting sports integrity outweighed Kalshi's case for federal primacy.
On Wednesday, a federal appeals court in Manhattan rejected Kalshi's bid to pause New York's enforcement while it appeals.
Kalshi has lost ground elsewhere.
Courts in Massachusetts, Michigan, Nevada and Washington have issued orders restricting its activities, Reuters reported, and James filed comparable petitions in April against two other operators, Coinbase Financial Markets and Gemini Titan, arguing their event contracts amounted to gambling.
The American Gaming Association, which has opposed the sector's expansion, welcomed the New York suit; its president and chief executive, Bill Miller, said the action protects consumers and legal gaming jobs, according to CNBC.
The outcome carries weight for Canadian investors, who reach Kalshi's markets through a domestic partner.
Canada's Investment Regulatory Organization authorized Wealthsimple in 2026 to give retail clients access to roughly 4,000 Kalshi event contracts, limited to economic indicators, financial markets and climate, and excluding sports and elections.
Interactive Brokers Canada holds a similar authorization and was the first CIRO dealer member cleared for the product.
The Canadian Securities Administrators and CIRO have cautioned that no prediction market is recognized as an exchange or registered as a dealer in Canada.
Ontario's securities regulator settled with rival platform Polymarket in 2025 and blocks it for Ontario residents.
