Kalshi has gone on the offensive in the Big Apple and has preemptively sued the New York Gaming Commission for overreach, striking first just weeks after Crypto.com lost a similar case in Nevada. The Manhattan-based company is responding to a cease-and-desist order received on Friday evening for alleged illegal sports betting.
KalshiEX LLC, represented by Millbank LLP, accused the New York Gaming Commission early Monday morning of usurping the federal government’s regulatory authority over derivatives trading. The prediction marketplace operator seeks to prevent the regulator from pursuing enforcement action. It claims the commission has threatened it with imminent fines and penalties for its “unauthorized” sports-related event contracts.
Cryptopolitan reported in late September that authorities in New Jersey, Nevada, and Maryland have also ordered the prediction platform to stop offering illegal sports wagering. Massachusetts took an even tougher stance, suing the platform for illegal and unsafe sports betting. In a 43-page filing, the state urged the court to block local users from accessing and participating in its sports prediction events.
Kalshi asserts its operations are legal in New York
The platform’s team stated that the U.S. Commodity Futures Trading Commission’s regulations preempt state authorities, and therefore, its operations are legal in the Empire State. It also pointed out that Congress established the CFTC to prevent the chaos that would result from subjecting exchanges to a patchwork of 51 different, potentially conflicting state laws.
However, the regulator claimed in the cease-and-desist letter that Kalshi is not licensed by the commission to offer sports betting in New York, either at a casino or as a mobile sports betting operator. The commission, therefore, demanded that Kalshi stop immediately from illegally operating, advertising, promoting, administering, managing, or otherwise availing sports betting in New York. It concluded by stating that it reserves the right to investigate the matter further and to impose and collect civil penalties concerning Kalshi’s current and future sports wagering activities in the state.
Meanwhile, Kalshi complains that these threats could harm the exchange, its customers, and business partners. The platform requests that the court enforce federal rules to preempt the state patchwork.
Wallach says Kalshi avoids state court by filing first
The founder and principal of Wallach Legal LLC, Daniel Wallach, stated that by filing first, Kalshi avoids state courts, where the cases would concern the legality of the contracts, rather than jurisdictional issues. He pointed out that the platform has taken the initiative to sue first in five out of six cases because most states require advance notice before filing lawsuits against businesses that repeatedly violate state laws.
Wallach said Kalshi has effectively persuaded two courts preliminarily that the CFTC has exclusive authority over contracts traded on CFTC-designated exchanges. U.S. District Judge Andrew Gordon in Nevada accepted this argument in Kalshi’s case, but denied Crypto.com’s request for an injunction.
Kalshi has seen varied outcomes in similar lawsuits across different states. It won preliminary injunctions in Nevada and New Jersey but lost in Maryland, where a judge ordered it to stop offering sports event contracts. However, officials have allowed the platform to continue operations in Maryland as the case is resolved.
However, in Crypto.com’s case, Wallach explained that the court analyzed the lawsuit through Congressional intent. The court concluded that it did not intend the CFTC’s exclusive swaps jurisdiction to cover sports betting, citing lawmakers’ comments and legislative history. A Nevada Gaming Control Board notice stated that Crypto.com must geofence Nevada and close open sports-event positions for state residents by November 3 pending its appeal.
The sports and gaming law authority expects Illinois and Arizona to be the next to litigate with Kalshi. He also predicts that more states will file cases against Kalshi, Crypto.com, and Robinhood in the coming months because court decisions in recent similar cases have favored the states.
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