RESOLVING THE LEDGER
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Whose interventions in prediction markets have teeth: states or the federal government? It matters because Kalshi is receiving state and federal directives that totally contradict one another.
On July 31, New York Governor Kathy Hochul and Attorney General Letitia James announced that their state was suing the prediction market Kalshi for allegedly running an illegal gambling operation. “Kalshi has chosen to ignore New York’s gaming laws, which exist to protect consumers, prevent problematic gambling, deliver funding for critical public services, and ensure that every company plays by the same rules,” Hochul said in a press release.
Well, on Tuesday, the U.S. Commodity Futures Trading Commission (CFTC) said in a press release it had "ordered the exchange to continue to operate." Prediction markets have strong—and ever strengthening —ties to the world of cryptocurrencies, and the chair of the CFTC, Mike Selig, has not hidden the fact that crypto is his top priority as head of the commission .
New York has, according to the release, "no business" regulating what the CFTC considers federally regulated financial markets. "The Commission is required by law to ensure order in these markets, and that is what we have done today."
The federal government may feel that way, but the state of New York's lawsuit asks the court to compel Kalshi to "forfeit all illegal gains," compensate consumers for their losses, and—most serious of all—pay three times its revenue made in New York in fines.
Hochul and James no doubt expected this battle. The CFTC tried to step in similarly in Michigan after that state sued, and a judge ruled in June that Kalshi must use location-based blocking to prevent Michigan residents from using it. The CFTC ordered Kalshi to keep honoring the trades of Michiganders ,
Robert Denault, Kalshi's Head of Enforcement, wrote on X that the contradictory state and federal requirements were putting the company in an "impossible position." Denault said Kalshi had "already acted and unwound the trades" as required by the Michigan court order.
We are disappointed by this decision and believe it is unfair to Kalshi. We already acted and unwound the trades, as the Michigan court order required us to do. We are being put in an impossible position, looking to follow state court orders that may contradict our federal… https://t.co/M81qNaOzCY
— robertjdenault (@robertjdenault) July 14, 2026
The CFTC already sued New York State back in April to prevent it from using state gambling laws as a framework for enforcement through lawsuits and cease-and-desist letters. According to its press release about the suit “CFTC-registered exchanges have faced an onslaught of state lawsuits seeking to limit Americans’ access to event contracts and undermine the CFTC’s sole regulatory jurisdiction over prediction markets."
The new press release about the CFTC's demand for Kalshi to keep operating in New York contains Selig's usual outline of his stance on prediction markets, but it's still clarifying to read:
“Congress did not intend for derivatives exchanges to be regulated under a patchwork of state gaming laws. These are financial exchanges that offer financial instruments and operate across state lines. They match the bid from a resident of one state with the offer of a resident from another state and submit the trade to a clearinghouse that backstops the transactions of customers throughout the country."
To New York State, prediction markets are gambling. To federal regulators, they "offer financial instruments." They can't both be right.
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