Judge Analisa Torres, known for presiding over the landmark Ripple case, has ruled against prediction market platform Kalshi. This was a significant legal setback for the company.
Torres denied Kalshi’s request for a preliminary injunction. She found that New York’s gambling laws as applied to Kalshi’s sports event contracts are not preempted by the Commodity Exchange Act. Consequently, the ruling means New York’s gambling regulations can continue to apply to those contracts. It blocks Kalshi from operating them in the state.
Legal Experts Warn of Ripple Effects
Attorney Daniel Wallach described the ruling as a major setback, writing:
“Major, major loss for Kalshi in the financial capital of the US, with likely knock-on effects in other cases.”
He said the ruling could trigger several consequences. These include a stronger case for the New York Attorney General, setbacks for Kalshi’s ongoing litigation in Connecticut, and renewed pressure on related prediction market cases. It could also potentially affect related legal battles involving Coinbase and Gemini. As a result, those cases could be sent back to state courts.
Legal commentator Noah Zingler-Sternig also reacted, saying, “fortunately, Judge Torres is wrong. Unfortunately, Judge Torres doesn’t think she’s wrong.”
He added that the momentum now appears to be shifting toward state regulators.
Prediction Markets or Gambling?
Kalshi argues that its event contracts are federally regulated financial instruments overseen by the Commodity Futures Trading Commission (CFTC). Therefore, they cannot be treated as gambling by individual states.
Former CFTC official Mike Selig defended that position. He explained “There are fundamental differences between prediction markets and casinos that make the former subject to the CFTC’s regulatory remit and not that of the states.”
According to Selig, prediction markets trade through regulated exchanges using order books, clearinghouses, and investor protections. Casinos, by contrast, are entertainment businesses that directly bet against customers and are regulated by state gambling laws.
States Continue Their Push
Despite Kalshi’s arguments, several US states are still challenging prediction markets. After Judge Torres’ ruling, New York Attorney General Letitia James is expected to take legal action against Kalshi. She will seek penalties and the return of profits.
Meanwhile, a federal judge in Minnesota has also questioned whether platforms like Kalshi and Polymarket have gone beyond what Congress originally intended under the CFTC’s rules.
Supreme Court Could Have the Final Word
Kalshi plans to appeal Judge Torres’ decision and seek another injunction. Meanwhile, the issue may eventually reach the U.S. Supreme Court. Justice Samuel Alito has given New Jersey until August 4 to file a petition. This petition will challenge an earlier appellate ruling that sided with Kalshi.
For now, the latest ruling strengthens the argument made by state regulators. They say that prediction markets function much like sports betting platforms. Thus, they should face the same state-level oversight and consumer protections.
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