Kalshi, a US-based predictions platform, is suing the New York State Gaming Commission (NYSGC) after receiving a cease-and-desist letter from the gambling regulator.
In an official complaint, sent on Monday to the Southern District Court of New York, Kalshi argued that the NYSGC should not be allowed to regulate its sports event contracts. Moreover, Kalshi views the state agency’s attempts to block prediction contracts as an intrusion on existing regulatory frameworks.
Why Kalshi is suing the NYSGC
On Monday, Kalshi filed a lawsuit against the NYSGC – a move that came hours after the organization received an order to exit New York from the state regulator.
In its cease-and-desist letter, the NYSGC cited 20 instances of purportedly illegal sports contracts provided by Kalshi and warned that it may seek criminal charges.
Further, Kalshi was threatened with potential “civil penalties and fines” if it did not depart the state while operating without a gambling license.
Kalshi is regulated by the Commodity Futures Trading Commission (CFTC) – which, the firm says, offers protection from gambling regulators. Kalshi also states that the NYSGC is overreaching its jurisdictional authority by attempting to force it out of the state, explaining that “efforts to regulate Kalshi are both field-preempted and conflict-preempted“.
In its case, Kalshi underscores this point: “The New York State Gaming Commission and its officers seek to intrude on the comprehensive federal scheme for regulating designated exchanges by attempting to prohibit Kalshi from offering contracts that federal law permits.”
Essentially, Kalshi is saying that the NYSGC cannot regulate activities that are already overseen by federal organizations, and that national law overrides state penal code.
In the wake of anticipated fiscal and consumer damages stemming from an immediate withdrawal from New York, the predictions firm outlined that it has no choice but to file a suit against the NYSGC: “Kalshi seeks an emergency temporary restraining order and preliminary injunction to avoid the immediate and irreparable harm that would result from Defendant’s (NYSGC) unlawful acts.”
What happens next in Kalshi’s case against the NYSGC?
Kalshi has already battled state regulators – recently winning temporary court injunctions in Nevada and New Jersey.
Core to the platform’s argument is a 1974 statute that lends “exclusive jurisdiction” to the CFTC over exchange-based derivatives, which was instituted in an effort to avoid subjecting exchanges to 51 different state regulatory requirements.
On the other side of the coin, critics believe that Kalshi is subverting longstanding player safety rules, anti-money laundering regulations and now industry-standard responsible gambling protocols.
It is much more than a simple question of whether Kalshi will continue operations in New York. Rather, this represents a power struggle between prediction platforms, regulators, the CFTC and federal law.
Additionally, many states will now look to the New York Southern District Court to evaluate its ruling on whether Kalshi’s sports contracts should be treated in the same way as traditional derivative trading or sports betting markets.
The outcome could prove decisive for potential legal action in the future – both from prediction platforms and nationwide state regulators.
