After years of facilitating a surge in gambling addiction by allowing users to make dubious bets on anything from the outcome of the World Cup to deadly conflict, trading platform Kalshi is finally facing a serious regulatory challenge.

New York Governor Kathy Hochul and Attorney General Letitia James announced that the state is suing the company for running an illegal gambling operation. An investigation by state authorities concluded that Kalshi was running an “illegal, unlicensed gambling operation” in the state.

Officials also pointed out that Kalshi was offering its services to “those under the legal gambling age of 21,” putting them at “serious personal and financial risk.” In New York, a person has to be at least 21 to participate in mobile sports betting.

The lawsuit is seeking to shut down Kalshi in New York and is requiring it to pay a $100,000 penalty for each attempt to offer sports betting and fees three times its gains in the state, which could saddles the company with paying an estimated $36 billion.

“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,” said Hochul in a statement.

The news comes as state regulators continue to ponder what rules to set for prediction markets, which have seen a massive surge in popularity over the past year or so. On the federal level, the Trump administration appears unlikely to jump into action, especially considering the president’s close personal ties to the prediction markets industry. His son, Donald Trump Jr, serves as an advisor to both Polymarket and Kalshi.

Kalshi and Polymarket continue to bristle at being associated with the gambling industry and argue they’re effectively a predictions-based stock exchange. Unlike Polymarket, Kalshi is regulated by the US Commodity Futures Trading Commission.

However, some officials vehemently disagree with that assessment.

“No matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple,” said James. “By ignoring our laws, Kalshi is running an illegal operation and harming New Yorkers in the process.”

Researchers continue to warn that gambling addicts are betting their entire incomes away on prediction markets, a growing crisis perfectly dovetailing a massive surge in sports betting in the United States following a 2018 Supreme Court decision.

Worse yet, rampant insider trading and other differentials in information means that the vast majority of users on Kalshi and Polymarket are being left holding the bag while a select few are getting away with big winnings.

The brashness of certain crimes linked to the markets is hard to fathom. Earlier this month, president Donald Trump’s longtime teleprompter operator was accused of making tens of thousands of dollars by placing bets on Kalshi about what the president would say, leading to his removal.

In short, the latest lawsuit shouldn’t come as a surprise to anybody who’s been following along.

Predictably, Kalshi has since shot back, accusing the government of making it all up.

“It’s sad to see this type of political theater from the leadership in our own state,” a spokesperson told CNBC in a statement. “States can’t just shut down a federally licensed exchange… We love New York, we love New Yorkers, and New Yorkers love our product.”

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