The Commodity Futures Trading Commission (CFTC) has intervened in a legal dispute between New York and the prediction market platform Kalshi, ordering the exchange to continue its operations. This federal action comes after New York Attorney General Letitia James filed a lawsuit on July 31, seeking to halt Kalshi's event contracts nationwide and demanding over $36 billion in damages. The CFTC invoked its emergency authority, citing a "market emergency" that New York's legal action created.
The core of the dispute centers on regulatory jurisdiction. New York alleges that Kalshi operates an illegal, unlicensed gambling business under state law, exposing residents, including those under 21, to financial risk. The state's lawsuit seeks to bar Kalshi from offering event contracts within or from New York, a broad request the CFTC argues could impact the company's nationwide operations, as Kalshi's principal place of business is in Manhattan.
CFTC Chairman Michael Selig stated that "Congress did not intend for derivatives exchanges to be regulated under a patchwork of state gaming laws". He argued that New York's attempt to regulate interstate financial markets is inappropriate, asserting that the CFTC is responsible for ensuring order in these markets. The federal agency maintains that event contracts traded on designated contract markets are federally regulated derivatives, and that state enforcement actions disrupt the uniform national market the Commodity Exchange Act requires.
Kalshi had notified the CFTC of a potential market emergency on August 1, prompting the federal agency's intervention. The CFTC's order directs Kalshi to continue operating in accordance with the Commodity Exchange Act's Core Principles, ensuring orderly trading and price discovery. The commission views New York's lawsuit and its request for a temporary restraining order as a disruption that could force liquidations and push trading to rival exchanges.
This is not the first instance of federal intervention in state-level actions against prediction markets. The CFTC previously stepped in regarding Michigan's enforcement actions, though the New York order is considered more expansive by directing Kalshi to maintain regular exchange operations while litigation proceeds. The CFTC has also initiated legal action against eight other states to defend its jurisdiction.
However, the CFTC's emergency order does not resolve the underlying legal battle. New York's lawsuit remains pending, and the question of whether federal law preempts state gambling laws in this context is yet to be definitively settled by the courts. A federal judge had previously denied Kalshi's request for a preliminary injunction against New York's gaming regulator in July, finding that state gambling laws were not preempted by the Commodity Exchange Act in that instance.
New York's lawsuit includes eight charges and seeks treble damages on Kalshi's profits, along with a $100,000 fine for each sports betting offering or attempt in the state. The state also aims to recover restitution for users and forfeit all illegal gains. Kalshi has criticized the lawsuit, characterizing it as "political theater".