Second Circuit refuses Kalshi, Coinbase injunctions against New York and Connecticut

On October 30, the US Court of Appeals for the Second Circuit denied requests by Kalshi and Coinbase for injunctions that would have blocked New York and Connecticut from enforcing state gambling laws against their sports event contracts while appeals proceed. It adds to a run of appeals-court decisions favouring states.

The decision could leave operators and affiliates working with prediction-market products in the two states without interim protection from enforcement.

What happened

The panel ruled on three appeals considered together: Kalshi against the New York State Gaming Commission, Kalshi against the Connecticut Department of Consumer Protection, and Coinbase against Connecticut Attorney General William Tong and other state officials. The order did not set out its reasoning in more detail.

The appeals follow federal district court rulings against Kalshi. Judge Analisa Torres declined a preliminary injunction in New York in July, finding that, as applied to the company's sports markets, the Commodity Exchange Act did not take precedence over the state's gambling laws.

Both states have since sued Kalshi:

• New York filed on 31 July. The attorney general's office alleges that Kalshi runs an unlicensed gambling operation and seeks an order stopping it, plus forfeiture of gains, restitution to consumers and fines of three times the gains, according to the state's announcement.
• Connecticut filed its suit on 26 August.

Kalshi moved both cases to federal court, and Connecticut asked for its case to be sent back to state court on 8 September.

Why it matters

Operators and affiliates should check whether any prediction-market or sports event contract products are being offered to, or promoted in, New York and Connecticut, as the Second Circuit has declined to shield such activity from state enforcement while the appeals run.

The ruling adds to a lengthening list of circuit decisions in favour of states. SBC Americas reports that the Ninth Circuit rejected Kalshi's appeal in its dispute with Nevada in late August, that the Sixth Circuit allowed Ohio and Tennessee to pursue enforcement in September, and that the Ninth Circuit denied a rehearing en banc request in the Nevada case. New Jersey has petitioned the Supreme Court to hear the Third Circuit case. A split between circuits of this kind is likely to keep the legal status of sports event contracts unsettled across states, which could complicate compliance planning for any business that markets them nationally.

Advertising is a further exposure. The subpoena seeks records on marketing campaigns, influencer agreements, payments to third parties and trading by people or firms hired to promote the platform. Her office says it is investigating whether Kalshi or third parties acting for it made false or misleading statements in advertisements. On 30 October Kalshi asked a federal judge for a protective order, arguing that New York is using the request to gather evidence for its gambling case. Affiliates and influencers paid to promote prediction markets could see their agreements and payments scrutinised.

What's next

According to Legal Sports Report, the separate remand proceedings in New York and Connecticut may produce the next significant developments, and a decision there could send the enforcement lawsuits back to state courts. Kalshi has until 7 December to respond to New Jersey's Supreme Court petition, after the Supreme Court granted it a second extension.