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New York’s gambling regulators are treating prediction markets less like Wall Street innovation and more like a sportsbook operating without a licence, as Kalshi and Polymarket-style “yes/no” contracts keep gaining traction with mainstream users.
The New York State Gaming Commission has already sent Kalshi a cease-and-desist letter, arguing that the company is effectively offering sports betting in the state without approval, setting up a legal fight over whether state gambling law can reach products that the platforms describe as federally regulated trading.
Kalshi is suing New York in response, insisting that its markets fall under the oversight of the Commodity Futures Trading Commission rather than state gambling regulation.
A cease-and-desist, and a bigger question about who gets to regulate
According to critics, prediction markets have gone from niche to noisy. Users can trade contracts on outcomes across politics, sports, and major news events, with prices moving like live odds. The platforms argue that the structure differs from a bookmaking operation: participants trade with each other, and the operator collects fees.
New York lawmakers, however, are openly questioning whether the label “trading” should change the rules.
“We’re dealing with a new animal,” said state Assemblymember Clyde Vanel, who told the press he has introduced legislation that would ban trading on many types of predictions, including sports and politics.
In Vanel’s view, if markets can be influenced, then the incentives to nudge outcomes don’t stop at sport. “Imagine what happens in politics,” he said, warning that misconduct could spill into decisions that “affect everyday people.”
The insider-trading flashpoint that’s driving the scrutiny
The policy debate became more heated after a Polymarket user reportedly wagered tens of thousands of dollars on a specific outcome involving Venezuela’s Nicolás Maduro shortly before a public announcement, and then profited by more than $400,000, prompting experts to question whether the trade looked like insider activity.
Kalshi responded to this accusation by saying “explicitly prohibits insider trading of any form,” including government employees trading on markets related to government activity, and added that “market integrity is integral” to a regulated exchange.
Expert view: the rules exist, enforcement is the test
Accounting and compliance professionals point out that “insider trading” isn’t a vibes-based concept just because the market looks like gambling.
KPMG’s D.J. Hennes said, using ‘inside knowledge’ could lead to prosecution for fraud, and that users should not be privy to “use material, nonpublic information to trade in these markets”.
That’s the tension New York is now facing. Regulators and lawmakers have firmly stated that they will push for ‘sportsbook-style guardrails’ if a product behaves like a wager, spreads like a betting app, and attracts the same risk profile, even if the operator insists it’s a different category.
Now, with Kalshi’s lawsuit running alongside state enforcement moves, the next phase may be decided in court. In whatever legislation states like New York can pass without triggering federal preemption fights.
Source: CBS News
