Polymarket sued by New York over alleged illegal gambling

New York Attorney General Letitia James has sued Polymarket, alleging that the prediction market operated without a state gambling license and allowed people under 21 to use its platform.

According to a petition filed by New York Attorney General Letitia James in a Manhattan state court on Sep. 24, Polymarket offered New Yorkers contracts tied to the outcomes of future events without obtaining a license from the New York State Gaming Commission.

The state is asking the court to stop the alleged unlicensed operation, order restitution for customers, impose civil fines, and require Polymarket to give up gains it says were earned illegally.

The filing puts the company in the same state legal fight as Kalshi, Coinbase Financial Markets and Gemini Titan. James brought a case against Kalshi in July, after filing petitions against Coinbase and Gemini in April. Each case centers on New York’s claim that the companies offered gambling products without the licenses required under state law.

Polymarket’s sports contracts draw New York’s challenge

New York’s petition cites contracts tied to sports outcomes, including a July baseball game between the Los Angeles Dodgers and New York Mets. In the state’s view, customers risk money on events they cannot control in exchange for a payout if their chosen outcome occurs. James describes the products as gambling, a legal claim Polymarket can contest in court.

State officials also object to Polymarket allowing users aged 18 to 20 onto the platform. New York sets a minimum age of 21 for mobile sports betting, and the attorney general argues that operating outside the state’s licensing system leaves customers without the safeguards required of approved betting companies.

Governor Kathy Hochul said the alleged operation had put New Yorkers at risk, particularly younger users whom she described as more vulnerable to problem gambling. James likewise argues in the petition that unlicensed contracts expose residents to gambling addiction without the protections imposed on state-regulated operators. Polymarket expressed disappointment with the lawsuit and said it would speak with the state, Reuters reported.

In July, New York sued Kalshi over prediction markets, alleging that its event contracts amounted to unlicensed gambling. The state’s case against Kalshi also raised the age of users and the absence of state approval. Kalshi has argued that its federal registration places its contracts under Commodity Futures Trading Commission oversight.

A separate inquiry has focused on how the products are sold to customers. In August, the New York City Council examined prediction market advertising by Polymarket, Kalshi, Coinbase and Gemini Titan. Council Speaker Julie Menin’s office said the inquiry concerned allegations of deceptive marketing and planned to consider whether consumer protection measures were needed. The city inquiry is separate from James’s state gambling cases.

CFTC jurisdiction remains contested in the US

At the center of the court disputes is whether federal oversight of event contracts prevents states from applying their gambling laws to sports-related markets. Prediction market operators have argued in litigation that contracts traded on federally regulated exchanges fall under the Commodity Exchange Act and the CFTC’s authority. State officials say a federal derivatives framework does not remove their power to license and regulate sports wagering within their borders.

James set out New York’s position in April when she joined 37 other attorneys general in a filing supporting Massachusetts’s case against Kalshi. The coalition argued that Congress did not give the CFTC exclusive control over sports gambling when it expanded federal regulation of swaps through the Dodd-Frank Act. The attorneys general also said state rules address matters such as minimum betting ages and protections for people at risk of gambling harm.

The distinction matters to US users because access to a sports contract can depend on the state where a customer lives and on court orders governing a particular operator. In Michigan, for example, a state court ordered Kalshi to keep sports event contracts blocked for residents while that lawsuit proceeds. The preliminary injunction carries potential fines of $500,000 per day for violations of its terms, as covered in September. That order concerns Kalshi; it does not decide New York’s claims against Polymarket.

Federal appeals courts have also reached different preliminary conclusions in Kalshi’s cases. In April, the Third Circuit upheld an order preventing New Jersey from enforcing its gambling rules against Kalshi’s sports contracts while the litigation continues. The court found Kalshi likely to succeed on its argument that the contracts qualify as swaps subject to the CFTC’s exclusive jurisdiction.

In August, the Ninth Circuit allowed Nevada gaming regulators to proceed against Kalshi’s sports contracts. Its ruling found Kalshi unlikely to succeed on the claim that federal commodities law displaced Nevada’s requirements. Neither preliminary ruling is a final decision resolving every claim in the underlying cases.

New Jersey has asked the Supreme Court to review the split

Following its Third Circuit loss, New Jersey petitioned the Supreme Court on Sep. 2 to review whether federal law prevents states from applying sports gambling rules to contracts offered on a CFTC-registered market. The state argues that Congress did not remove its authority over sports wagering by defining and regulating swaps.

New Jersey’s petition asks the justices to review the Third Circuit decision in the Kalshi case. Filing the petition does not mean the Supreme Court has agreed to hear it; the justices must first decide whether to grant review.