(CNN) — The New York attorney general’s office is suing Kalshi, one of the largest prediction markets, alleging it’s running an illegal gambling operation in the state.
Attorney General Letitia James alleges Kalshi failed to obtain a state gambling license and pay related taxes. The lawsuit, which was filed in New York State court early Friday, is seeking an order enjoining Kalshi’s operations, plus fines, restitution and the forfeiture of profits.
“New York’s gambling laws protect children from underage betting and help combat gambling addiction,” James said in a statement announcing the lawsuit. “No matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple.”
The attorney general also alleges Kalshi’s prediction market is open to users younger than the legal age in New York to participate in mobile sports betting.
A spokesperson for Kalshi said in response to the lawsuit: “It’s sad to see this type of political theater from the leadership in our own state. States can’t just shut down a federally licensed exchange. This would also just hurt New Yorkers, who would be driven offshore. We love New York, we love New Yorkers, and New Yorkers love our product.”
The lawsuit is the latest brought by a state attorney general against an operator of prediction markets, which allows up or down bets on almost anything – from the Oscars to sports games.
The fast-growth, increasing popularity and big-dollar bets across prediction markets have created an all-out battle over whether state gaming commissions or the Commodity Futures Trading Commission, the federal regulator, should have oversight.
A federal appeals court paved the way for New York to file the lawsuit after an appellate judge on Wednesday denied Kalshi’s request to pause a lower court’s ruling finding that New York’s gambling rules could apply despite federal regulation.
A person familiar with the case said there were negotiations to avoid a lawsuit but talks broke down.
Overnight, the federal regulator, the CFTC, asked the judge overseeing the federal case to issue an order to stop New York from taking any action against prediction markets, saying it has exclusive jurisdiction.
“Altogether, allowing New York to enforce its gambling laws against CFTC-regulated (entities) has the potential for a single state to bring entire federally regulated markets to the brink of destruction,” the CFTC wrote in a court filing.
Other states have previously filed lawsuits against Kalshi and its rivals, and the prediction markets have proactively sought to block some state commissions from oversight.
In May, Rhode Island sued Kalshi and Polymarket for unlawful sports betting. In April, the New York attorney general sued Coinbase and Gemini, alleging they are running illegal gambling operations in New York through their prediction market platforms. The platforms all deny any wrongdoing.
Courts across the country have ruled in favor of both sides in different cases.
A federal judge on Monday blocked Minnesota from enforcing its statewide ban on prediction markets. Days later, in a separate case in Wisconsin, a judge ruled that the state can regulate prediction markets like gambling. A federal appeals court held a hearing Thursday about similar lawsuits in Ohio and Tennessee.
So far, Nevada, Michigan and Washington state have successfully shut down some or all of Kalshi’s operations in their states, as a result of lawsuits that are ongoing. The company opposed these decisions and has argued that it can only be regulated by the federal government.
CNN has a partnership with Kalshi and uses its data to cover major events. But CNN editorial employees are not allowed to use prediction markets.
CNN’s Marshall Cohen contributed to this report.
The-CNN-Wire
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