The legal battle over US prediction markets intensified on Friday after the Commodity Futures Trading Commission (CFTC) asked a federal court to stop New York from taking action against federally regulated platforms, just hours after New York Attorney General Letitia James filed a lawsuit against Kalshi.
The dispute centres on whether prediction markets fall under federal commodities law or state gambling laws. The outcome could shape the future of event-based trading platforms that have become increasingly popular among crypto users and traders.
“Sports betting attorney Daniel Wallach revealed that NY AG Letitia James also filed a motion for a temporary restraining order, with several former CFTC attorneys.” https://t.co/ooS6NY6ioL
— Daniel Wallach (@WALLACHLEGAL) July 31, 2026
Why New York is suing Kalshi
New York Attorney General Letitia James, alongside Governor Kathy Hochul, filed a lawsuit in state court accusing Kalshi of operating an illegal and unlicensed gambling business within the state.
The lawsuit seeks to stop Kalshi from offering its services in New York. It also requests restitution, disgorgement of profits, civil penalties, damages totalling $36 billion, and both preliminary and permanent injunctions.
The state argues that Kalshi’s event contracts amount to gambling under New York law and therefore require state authorization.
CFTC seeks emergency order to block New York enforcement
The CFTC and the U.S. government filed an emergency motion for a temporary restraining order in the US District Court for the Southern District of New York, asking the court to prevent the New York Attorney General from bringing criminal or civil enforcement actions against Kalshi or any other CFTC-registered prediction market.
BREAKING: CFTC files for emergency TRO against New York seeking to immediately block the @NewYorkStateAG from pursuing criminal or civil enforcement actions vs. Kalshi or any other CFTC-registered entity. Hail Mary filing seeks to get out ahead of the AG ‘s state court filing. pic.twitter.com/pE3Y7LaflT
— Daniel Wallach (@WALLACHLEGAL) July 31, 2026
According to the filing, the regulator argued that the Commodity Exchange Act gives the CFTC exclusive authority over prediction markets and overrides conflicting state gambling laws.
The agency said immediate court action is necessary while its request for a preliminary injunction is still pending. It also warned that allowing states to regulate federally registered prediction markets could disrupt the US derivatives market and create conflicting legal standards.
The CFTC has previously challenged similar actions by other states, maintaining that prediction markets operating under its oversight should not face separate state enforcement. Meanwhile, the CFTC directed Kalshi to continue operating in Michigan, despite a state court order requiring the platform to stop offering sports event contracts.
Legal battle deepens over prediction markets
The US Court of Appeals for the Second Circuit denied the company’s request for temporary administrative relief while a three-judge panel reviews the case. Earlier, Judge Analisa Torres also denied Kalshi’s request for a preliminary injunction against New York’s enforcement of its gambling laws.
The parallel cases have now created a direct clash between federal and state regulators over who has the authority to oversee prediction markets. The court’s decisions could have more implications for regulated event contracts, including markets that attract participants from the crypto industry seeking alternative trading products.
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