coindesk.com
Prediction market Kalshi filed a federal lawsuit against the New York State Gaming Commission, arguing that the state’s attempt to shut down certain event-based contracts violates federal law.
In a complaint filed Monday in the Southern District of New York, Kalshi asked the court to block New York officials from enforcing state gambling laws that the company said don’t apply to its operations.
Kalshi is registered with the Commodity Futures Trading Commission (CFTC) as a designated contract market (DCM), which gives it the federal right to list and clear derivatives tied to real-world events, including sports outcomes, it said in the filing.
The dispute centers on Kalshi’s recent offering of sports-event contracts, which the company self-certified with the CFTC earlier this year. The contracts allow users to take opposing financial positions on whether a team will win or advance in a tournament, among other outcomes.
The New York regulator claims such activity constitutes illegal sports wagering under state law and has threatened fines and enforcement action.
Kalshi argued that’s not only wrong, but unlawful. The federal Commodity Exchange Act gives the CFTC “exclusive jurisdiction” over derivatives traded on federally regulated exchanges, the lawsuit says.
Letting states apply their own rules will, the complaint says, create a fragmented system Congress sought to avoid.
“Defendants thus seek to subject Kalshi to the patchwork of state regulation that Congress created the CFTC to prevent, and to interfere with the CFTC’s exclusive authority to regulate derivatives trading on the exchanges it oversees,” the document reads.
Kalshi argued it’s now trapped between a rock and a hard place. If it doesn’t comply, it will face civil and criminal liability, and if it does comply it will “incur substantial economic and reputational harm as well as the potential existential threat of the CFTC taking action against it for violating the CFTC’s Core Principles.”
The company is seeking emergency relief to stop New York from enforcing its cease-and-desist order, arguing that doing so is necessary to avoid immediate and irreparable harm to its platform and its users.