Kalshi's "major loss" at SDNY: Judge Torres tells CFTC prediction markets are the states' problem ⚖️

A federal court in Manhattan has dealt Kalshi a significant procedural defeat in its bid to operate outside state gambling oversight. On July 7, Judge Analisa Torres of the Southern District of New York denied Kalshi's motion for a preliminary injunction, holding that "the scope of laws regulating gambling and lotteries is clearly a matter of predominantly state concern." The ruling rejected Kalshi's argument that its status as a CFTC-regulated platform preempted New York gambling law, with Torres noting that "courts apply a presumption against preemption with respect to areas where states have historically exercised their police powers" and that "such a presumption arises only when Congress legislates in a field traditionally governed by the states." The Commodity Exchange Act, she explained, does not on its face displace state control over gambling.

The decision stems from a case testing whether prediction markets are CFTC-supervised derivatives or unlicensed gambling. Kalshi had maintained that federal oversight placed it above state law, a position the CFTC endorsed in April 2026 when it backed Kalshi and made similar preemption arguments against Arizona, Connecticut, Illinois, Wisconsin, New Mexico, and Minnesota. The agency's broader attempt to block state enforcement could now be undercut, according to gaming attorney Daniel Wallach, who wrote that the ruling will have a "far-reaching domino effect." Wallach predicted the CFTC will lose its case against the New York Attorney General, that state actions against other prediction market providers including Gemini and Coinbase will advance, and that an NYAG enforcement action against Kalshi itself for gambling law violations could proceed. Kalshi's parallel injunction request in Connecticut, he added, will also likely fail.

In comments after the decision, Wallach called the outcome a "major loss" for Kalshi and a "big win" for the NYAG, adding that the company "will appeal the injunction denial to CA2 and seek an immediate injunction pending appeal." The backdrop to the fight is rapid commercial growth: Kalshi and Polymarket each notched record monthly volumes in June as the World Cup kicked off, with the two platforms together processing roughly $43 billion in that month. Sports betting drove the bulk of that activity, a pattern critics cite in calling such venues "100% gambling sites" rather than the risk-management tools operators describe.