CFTC Invokes Emergency Powers to Shield Kalshi from New York's $36 Billion Prediction Market Lawsuit
CFTC Invokes Emergency Powers to Shield Kalshi from New York’s $36 Billion Prediction Market Lawsuit #
The US Commodity Futures Trading Commission has used emergency authority to order Kalshi to keep its prediction market platform running, as a jurisdictional dispute with New York state carries up to $36 billion in potential damages.
The CFTC issued the directive Tuesday after Kalshi notified the regulator that a lawsuit filed by New York Attorney General Letitia James on July 31 had created a “market emergency.” The commission concluded the threat to Kalshi’s operations warranted intervention under Section 8a(9) of the Commodity Exchange Act, ordering the company to continue running its exchange in accordance with its normal practices and the Act’s core principles for federally regulated designated contract markets.
James’s lawsuit seeks a temporary restraining order barring Kalshi from offering event contracts nationwide, along with more than $36 billion in damages. That figure is calculated under New York law, which allows regulators to pursue three times an operator’s alleged gains plus $100,000 for every bet placed within the state. The complaint characterizes Kalshi as an unlicensed gambling business, a characterization the CFTC rejects.
CFTC Chair Michael Selig said Congress did not intend derivatives exchanges to be subject to a patchwork of state gaming laws. “New York has no business regulating these interstate financial markets. The commission is required by law to ensure order in these markets, and that is what we have done today,” Selig said.
The CFTC has indicated it may compel Kalshi to keep trading in New York even if a state court orders a shutdown, on the grounds that its federal authority takes precedence. The commission argues that a state-enforced closure would amount to shuttering a federally regulated designated contract market and constitute a major market disturbance.
Tuesday’s action follows the CFTC’s suits against nine states, including Arizona, Connecticut, Illinois, Kentucky, Minnesota, and Rhode Island, as the commission presses its claim to exclusive jurisdiction over event contracts. The legal record has been uneven for Kalshi: a federal judge denied the platform a preliminary injunction against New York’s gaming regulator in July, while the company has obtained more favorable rulings in litigation involving New Jersey and Minnesota.
Whether prediction markets are federally regulated financial instruments or unlicensed gambling subject to state oversight remains unsettled in the courts.
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