The legal dispute over Kalshi and prediction market regulation intensified on Friday. The Commodity Futures Trading Commission and the United States requested an emergency restraining order against New York, while state officials filed a separate lawsuit against Kalshi.
The competing legal actions could determine whether federally regulated prediction markets must also comply with state gambling laws.
CFTC Requests Emergency Restraining Order
The CFTC and the US government filed an emergency motion for a temporary restraining order in the US District Court for the Southern District of New York.
The federal regulator wants the court to prevent the New York Attorney General from taking criminal or civil enforcement action against Kalshi or other platforms registered with the CFTC.
According to the filing, immediate court intervention is necessary while a separate motion for a preliminary injunction remains under consideration.
The CFTC argues that the Commodity Exchange Act gives the agency exclusive authority over federally regulated prediction markets. Therefore, it claims federal law overrides conflicting state gambling regulations.
Some legal observers described the emergency filing as a last-minute attempt to stop New York from advancing its state-level enforcement case.
Federal Regulator Challenges State Oversight
The CFTC has repeatedly argued that state interference could damage the structure and integrity of federally regulated derivatives markets.
Prediction market contracts allow users to trade on the outcome of real-world events, including elections, economic developments, sports and financial markets.
However, state regulators often view certain event contracts as a form of gambling. This difference in classification has created ongoing disputes between federal commodities regulators and state authorities.
The CFTC has previously challenged several states over similar enforcement efforts. The agency maintains that registered derivatives platforms should operate under one federal regulatory framework rather than multiple state gambling regimes.
New York Attorney General Files Lawsuit Against Kalshi
At the same time, New York Attorney General Letitia James and Governor Kathy Hochul announced a state lawsuit against Kalshi.
The lawsuit alleges that Kalshi operates an illegal and unlicensed gambling business in New York.
State officials are asking the court to prevent the company from continuing its operations without a gambling license. The lawsuit also seeks restitution, disgorgement, civil penalties and other damages reportedly totaling as much as $36 billion.
In addition, New York requested preliminary and permanent injunctions against the prediction market platform.
New York Also Seeks Temporary Restraining Order
Sports betting attorney Daniel Wallach reported that the New York Attorney General filed a separate motion for a temporary restraining order against Kalshi.
This means both sides are now seeking emergency judicial protection.
The CFTC wants to block New York from enforcing its gambling laws against federally registered platforms. Meanwhile, New York wants to stop Kalshi from offering what the state considers unauthorized betting products.
The competing requests create an unusual legal situation in which federal and state authorities are asking different courts to restrict the actions of the opposing side.
Kalshi Suffers Previous Court Setbacks
The latest filings follow several legal setbacks for Kalshi.
The US Court of Appeals for the Second Circuit recently rejected the company’s request for temporary administrative relief. Kalshi had requested protection while its case was being reviewed by a three-judge panel.
US District Judge Analisa Torres had also previously rejected Kalshi’s request for a preliminary injunction against New York’s enforcement of gambling laws.
These decisions allowed the state’s regulatory campaign to continue while the broader legal dispute remained unresolved.
Why the Kalshi Lawsuit Matters
The outcome could have major consequences for the prediction market industry.
A ruling in favor of the CFTC could strengthen federal authority over event-based contracts and limit the ability of individual states to regulate CFTC-registered platforms.
However, a victory for New York could force prediction markets to secure state gambling licenses or withdraw certain products from individual jurisdictions.
The case may also influence how courts classify contracts connected to sports, politics, economics and other real-world outcomes.
For now, Kalshi faces legal pressure from New York, while the CFTC is attempting to protect federally regulated platforms from state enforcement. The courts will ultimately decide whether prediction markets fall primarily under federal commodities law or state gambling regulations.
