NY AG Files Subpoena to Make Kalshi Reveal More Documents in Ongoing Case

New York’s Attorney General Letitia James has escalated the legal fight between the state and Kalshi by filing a petition to get a court to order the company to produce documents requested under a September 25 subpoena. What Is the Lawsuit About? James’ petition marks yet another step in New York’s fight against Kalshi and the prediction markets sector in general. New York alleges that Kalshi is effectively operating an unlicensed gambling business that should be regulated by the state. Meanwhile, Kalshi says its offerings do not constitute a form of gambling, and therefore, they fall under the control of the Commodity Futures Trading Commission (CFTC). In July, a federal judge rejected Kalshi’s request for a preliminary injunction against state officials. Kalshi subsequently appealed to the US Court of Appeals for the Second Circuit, but its request for an injunction pending appeal was also denied. The next day, James’ office initiated a lawsuit in state court, which Kalshi promptly moved to federal court. Meanwhile, the CFTC has entered the broader legal dispute by filing its own lawsuit against New York. The agency later issued an emergency order requiring Kalshi to continue providing access to its contracts in the state, notwithstanding the possibility of state enforcement action. New York isn’t picking a fight only with Kalshi, but has also gone after other major prediction markets providers, namely Polymarket. In late September, James’ office filed a lawsuit against the company, alleging it offered unlicensed gambling in New York, just like Kalshi. What Did the Subpoena Seek? Kalshi had until October 5 to produce the requested documents from the September 25 subpoena. The subpoena sought a broad range of documents and communications relating to various aspects of Kalshi’s business, such as advertising and influencer marketing. This includes promotional materials, agreements, payments, and trading activity involving individuals or companies engaged to promote Kalshi. Furthermore, the subpoena requested information on internal marketing policies, such as training materials, internal guidance, and procedures governing the company’s advertising and promotional practices. This also includes proprietary trading and market making, such as records of Kalshi’s own trading, as well as its arrangements with third-party market makers. The subpoena also requested information on incentive programs. These include documents relating to Kalshi’s volume, liquidity-provider, combo, and market-maker incentive programs. Finally, the AG’s office requested prior regulatory disclosures, including materials previously submitted to other state or federal regulators addressing these same areas. Despite not meeting the October 5 deadline, Kalshi moved to quash the subpoena in an October 30 request to the court. The company argued that it improperly seeks evidence on matters already at issue in the state’s ongoing enforcement action against the exchange. However, with the new petition, James seeks to have the court force Kalshi to provide the requested documents within 10 days of the potential court order. In other news from New York, the state’s casino recorded a stable income in September, while online sports wagering saw a huge increase in handle.