US federal court leaves Kalshi exposed to New York gambling case, for now
A New York judge declined to shield Kalshi from state action, deepening a jurisdictional clash over prediction markets and event contracts.
A US federal judge has refused to shield prediction market operator Kalshi from a New York state enforcement action, leaving the company exposed to litigation that tests whether federal commodities law can override state gambling statutes governing event contracts.
Judge Jed S. Rakoff denied, without prejudice, an emergency request from the Commodity Futures Trading Commission for a temporary restraining order that would have paused New York’s case against Kalshi. Rakoff concluded that the regulator had not demonstrated a high likelihood of success on the merits, nor shown it would suffer irreparable harm if the state proceeding continued, according to the order reported by Cointelegraph.
A jurisdictional collision over event contracts
The dispute centres on whether contracts tied to sports fixtures, elections and other real-world events, listed on a CFTC-regulated exchange, count as derivatives falling under exclusive federal jurisdiction, or as wagers subject to individual state gambling law. Kalshi and the CFTC argue for the former; New York and other states insist the latter applies.
New York Attorney General Letitia James filed suit against Kalshi last Friday, alleging the platform runs an unlicensed gambling operation. The New York State Gaming Commission had already issued Kalshi a cease-and-desist order in October 2025, a warning the company has continued to contest as it kept its contracts live in the state.
Rakoff’s ruling does not settle that underlying question. The CFTC retains the option to bring the motion again before Judge Victor Marrero, with a hearing date set for Friday, 7 August, meaning the federal-state standoff is likely to continue rather than conclude with this order.
Why the outcome matters beyond one platform
The case is being watched closely because Kalshi is not an isolated target. Several US states have moved against prediction market operators over the past year, arguing that federal derivatives licensing cannot be used to bypass state-level consumer protection and gambling licensing regimes. A ruling that federal preemption applies would sharply limit states’ ability to police such products; a ruling the other way could force platforms like Kalshi to seek gambling licences state by state, fragmenting a market that has grown rapidly on the promise of a single national regulatory framework.
For institutional observers and exchanges eyeing similar contract structures, the New York proceeding is effectively a test case for how far CFTC oversight extends into markets that resemble betting products in substance, even where they are structured as derivatives in form. Regulators in Europe and the UK, who have generally kept event-based prediction markets at arm’s length from mainstream derivatives frameworks, are likely to track the outcome as they consider their own stance on the sector.
With the CFTC free to press its case again within days, and New York’s underlying suit against Kalshi still active, the legal question of who ultimately regulates event contracts in the United States remains unresolved. The renewed hearing before Judge Marrero is expected to offer the next signal of how the courts intend to draw that line.
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