New York Court Denies Injunction in Kalshi Lawsuit Over Gambling Incident—Orders Former Congressman Santos to Pay $35,000

New York Court Denies CFTC's Injunction Request in Kalshi Lawsuit

Concerns about regulatory authority and market manipulation surrounding the prediction market platform Kalshi are intensifying. A federal court has denied the CFTC's (Commodity Futures Trading Commission) request to block a lawsuit from New York State against Kalshi, while the CFTC announced a settlement with former Congressman George Santos, who allegedly profited unfairly from the market.

New York State's Kalshi Lawsuit, No Injunction Granted

Judge Jed S. Rakoff of the federal district court rejected the CFTC's emergency request for a "temporary restraining order" to halt New York State's law enforcement actions against Kalshi.

The judge determined that the CFTC had not sufficiently demonstrated the likelihood of success or irreparable harm. This denial allows for the possibility of re-filing, meaning the CFTC can reapply to Judge Victor Marrero on Friday, August 7, 2026.

This case stems from a lawsuit filed by New York Attorney General Letitia James, alleging that Kalshi operates illegal gambling businesses related to sports and elections without a license. Kalshi argues that its contracts fall under financial derivatives regulated by the CFTC, but this ruling indicates that the jurisdictional battle over whether it is a federal derivatives market or subject to state gambling regulations is likely to continue under New York's pursuit.

Former Congressman Santos to Pay $35,000 for Market Manipulation

Amid the jurisdictional issues, improper trading within Kalshi's market has also come to light. On July 31, the CFTC announced it had reached a settlement with former Congressman Santos for engaging in inappropriate trading on Kalshi.

In February 2026, Santos traded a contract questioning attendance at President Trump's State of the Union address. Initially, he purchased a "Yes" position while posting questions about the speech's attire on social media to inflate prices. After securing profits, he learned that his means of transportation (plane or train) had been canceled or suspended. While publicly claiming he would attend, Santos secretly accumulated a large number of "No" positions, ultimately gaining approximately $17,500 (about 2.75 million yen) in unfair profits.

Kalshi detected the unusual trading, froze the account, and reported it to authorities, prompting an investigation. Santos denied intentional wrongdoing but accepted a payment of $35,000, which includes profit restitution and civil penalties, along with a three-year trading ban.

Increasing Regulatory Scrutiny on Prediction Markets

Santos's case highlights the risks of "insider trading" and price manipulation by parties involved in specific events or those with insider information.

In addition to Kalshi, other prediction markets like Polymarket have also seen instances of improper trading using military and corporate information. With regulatory interest rising, various platforms are enhancing monitoring programs in collaboration with external agencies, but establishing a framework to ensure the integrity of prediction markets, including who holds jurisdiction between federal and state authorities, has become urgent.