NEW YORK — New York’s attorney general sued Kalshi on Friday, claiming that its prediction market platform violates state laws against illegal gambling.

The case brought by Attorney General Letitia James escalates a rapidly expanding battle, including a flurry of lawsuits and countersuits, over whether individual U.S. states or the federal government should regulate the fast-growing prediction markets industry.

In a petition filed in a state court in Manhattan, James said Kalshi failed to obtain a New York State Gaming Commission license to operate its platform, where people trade based on the predicted outcomes of sports, elections and other events.

The attorney general said such platforms can encourage problem gambling, including by people under age 21, and endanger people’s financial, emotional and physical health.

She filed similar petitions in April against two other prediction market operators — Coinbase Financial Markets and Gemini Titan — saying all three companies’ so-called event contracts were “quintessentially” gambling.

“New York’s gambling laws protect children from underage betting and help combat gambling addiction,” James said in a statement. “No matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple.”

CFTC Challenges New York

Prediction markets such as Kalshi and Polymarket have soared in popularity since the 2024 U.S. presidential election, when they fared better than pollsters in predicting Republican Donald Trump’s victory over Democrat Kamala Harris.

The U.S. Commodity Futures Trading Commission has claimed exclusive oversight and challenged regulatory activity in at least nine states including New York, which it sued in April.

Kalshi is based in New York. The company expected James’ lawsuit, calling it “political theater from the leadership in our own state,” and sought to move it to Manhattan federal court eight hours after the attorney general filed it.

New York “seeks to place itself in the position of a nationwide derivatives regulator,” Kalshi said. “Through this action — which seeks to shut Kalshi down nationwide — New York seeks to fundamentally subvert the exclusive jurisdiction of the CFTC.”

The CFTC, meanwhile, filed an “emergency” motion in the federal court late Thursday night to stop New York from subjecting Kalshi to state gambling laws, calling it “overreach” that would irreparably harm the agency and markets it regulates.

On Wednesday, the federal appeals court in Manhattan rejected Kalshi’s request to avoid possible enforcement activity, while it appeals U.S. District Judge Analisa Torres’ refusal on July 8 to issue an injunction against the state. Kalshi preemptively sued New York last October to block such activity.

Wagers on the Super Bowl, ‘Big Brother’

According to New York’s petition, Kalshi’s prediction markets are gambling because people can wager on events whose outcomes they don’t control, such as who will win the Super Bowl or the reality TV show “Big Brother.”

New York also objected to Kalshi letting 18- to 20-year-olds use its platform, despite a minimum age of 21 under state law for mobile sports betting.

“Kalshi has chosen to ignore New York’s gaming laws, which exist to protect consumers, prevent problematic gambling, deliver funding for critical public services, and ensure that every company plays by the same rules,” New York Governor Kathy Hochul said in a statement. “This choice has consequences.”

At least four states — Massachusetts, Michigan, Nevada and Washington — have won court orders restricting Kalshi’s activities.

In refusing to stop potential New York enforcement activity, Torres found the state’s interests in preventing gambling addiction, preserving the integrity of sports, and avoiding ​a proliferation of unregulated contracts “heavily” outweighed Kalshi’s interests in ensuring the primacy of federal law and avoiding “intractable” technology issues for customers.

New York is seeking a halt to Kalshi’s alleged unlawful conduct, the forfeiture of illegal gains, civil fines equal to triple those gains, and restitution to customers.

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(Reporting by Jonathan Stempel in New York; Editing by Lincoln Feast; Editing by David Holmes)