New York Attorney General Letitia James and Governor Kathy Hochul sued prediction market exchange Kalshi on July 31, 2026, seeking up to $36 billion in damages and accusing the company of running an unlicensed gambling operation inside state lines. Kalshi, which is headquartered in New York, had its CEO Tarek Mansour push back sharply on CNBC's Squawk Box on August 3, arguing the entire legal theory misidentifies what his company is.

"You could copy and paste that lawsuit and file it against Nasdaq," Mansour said, pointing to Kalshi's status as a federally regulated exchange licensed by the Commodity Futures Trading Commission. The CFTC granted Kalshi a Designated Contract Market (DCM) license in November 2020, which Kalshi describes as placing it in the same regulatory category as major derivatives exchanges.

A DCM license allows a platform to list and clear event contracts as financial instruments. Kalshi argues that this designation means its contracts are not gambling products subject to state regulation.

The Jurisdiction Question at the Center of the Case

The lawsuit, filed in New York Supreme Court in Manhattan, demands compensatory damages calculated on a triple-gains formula, plus $100,000 for each unauthorized sports wagering offer made to state residents. The $36 billion figure reflects the Attorney General's calculation under that formula applied to alleged revenues, not a court-determined award.

New York also obtained a temporary restraining order attempting to halt Kalshi's operations. The CFTC responded by filing a counter-TRO to block the state's enforcement action, setting up a direct federal-versus-state standoff. That response was not an isolated move: in April 2026, the CFTC had already sued nine states, including New York, to assert its exclusive regulatory authority over prediction markets, and its counter-TRO is part of that continuing federal effort.

New York's case rests on the argument that Kalshi is operating as a sportsbook without a state gambling license. The state alleges Kalshi allowed users aged 18 to 20 to place sports contracts, violating New York's minimum age of 21 for mobile sports betting. Kalshi had also ignored a cease-and-desist issued by the New York State Gaming Commission in October 2025, which regulators cited as evidence of deliberate noncompliance.

Kalshi's counterargument is that the Commodity Exchange Act gives the CFTC exclusive jurisdiction over contracts traded on a licensed DCM, overriding state gambling law. That argument took a significant blow on July 8, when U.S. District Judge Analisa Torres denied Kalshi's motion for a preliminary injunction against New York's authority. Torres cited language in Section 2 of the Commodity Exchange Act: "Nothing contained in this section shall supersede or limit the jurisdiction conferred on other regulatory authorities under state law."

Sports Contracts Drive Nearly All of Kalshi's Volume

Sports event contracts accounted for roughly 87 percent of Kalshi's $39.7 billion in traded volume over the past year. The platform began offering sports contracts in January 2025, and the category expanded rapidly alongside broader prediction market growth. Global prediction market volume reached more than $44 billion in 2025, representing a roughly 130-fold increase from early 2024.

Prediction markets allow users to buy and sell binary outcome contracts on real-world events, with payouts determined by whether those events occur.

Mansour framed the regulatory pushback as an industry protection play rather than a consumer safety effort. "This is the same playbook you see any time a legacy industry gets disrupted," he said. "First they litigate. Then they try to legislate. Eventually they will come around to the fact that consumer demand isn't going anywhere." The comparison to Uber and Airbnb, both of which faced city and state lawsuits before eventually negotiating regulatory frameworks, is deliberate and reflects a broader strategy of positioning Kalshi as a technology platform facing incumbent resistance.

Attorney General James rejected that framing. "Prediction markets like Kalshi are gambling platforms, plain and simple," she said in a statement on July 31. Governor Hochul added: "No company is above the law."

Outside the US, the Case Is Already Having Effects

The legal fight is not contained to New York. Eighteen states have active blocks or bans on Kalshi, and a coalition of 44 state attorneys general has aligned in opposition to the federal preemption argument the CFTC has advanced in parallel with its own claim of exclusive federal jurisdiction.

International users are watching closely and some have already lost access. India blocked Polymarket in May 2026 and restricted Kalshi's availability to Indian users following the passage of the Promotion and Regulation of Online Gaming Act 2025, which classifies offshore prediction platforms using stablecoin settlement as prohibited money-gaming services.

The stablecoin trigger is particularly significant for South Asian developers building on-chain event contract products. Settling in USDC or USDT may be enough to trigger classification as a high-risk money gaming service under India's regulatory framework, regardless of how the product is described.

In South Africa, the South African Bookmakers' Association published a position paper on July 27, just four days before the New York suit was filed, calling for prediction markets to be treated as illegal offshore gambling until dedicated national legislation is enacted. South Africa carries the highest betting participation rate on the continent at 83 percent, and SABA's proposed framework mirrors New York's arguments closely, targeting licensing requirements, tax compliance, and consumer protections.

The implications extend further across the continent. Kenya, where 79 percent of adults participate in betting, and Nigeria, where crypto and sports betting intersect heavily, both have active informal prediction market populations using platforms such as Polymarket and Telegram-based crypto betting pools. How the US federal preemption question resolves is expected to directly shape how regulators in those markets approach similar products.

What Comes Next

The federal preemption question has produced contradictory rulings across jurisdictions. Federal courts in Nevada and New Jersey sided with Kalshi, while courts in New York and Maryland rejected its arguments.

No appellate court has issued a controlling decision as of August 3.

Builders working on decentralized prediction protocols, particularly those on Solana or Base targeting event contracts with on-chain settlement, face a practical binary: if federal preemption prevails, a CFTC DCM license becomes a viable compliance path. If states win, geoblocking by jurisdiction is likely unavoidable. The outcome of the New York litigation will be one of the most closely watched regulatory decisions in the sector this year.