New York sues Polymarket over its prediction market for illegal gambling

New York Attorney General Letitia James and Governor Kathy Hochul on Thursday jointly sued Polymarket, a crypto-forecasting marketplace that operates unlicensed gambling in the state of New York, asking courts to suspend its operations and recover illegal proceeds.

The central accusation of the state government

The Attorney General's Office investigation determined that the marketplace on Polymarket met New York state law's definition of gambling: users bet money on random outcomes over which they had no control. According to the lawsuit, Polymarket never obtained a license from the New York State Gaming Commission and thus avoided paying taxes required by licensed casinos and mobile sports betting platforms that were originally used to fund public schools, youth athletic programs, and problem-gambling therapy.

The lawsuit also addresses the issue of age thresholds: the platform is open to users between 18 and 20 years old, while New York State requires that mobile sports betting users be 21 or younger.

The state government asked the court to ban Polymarket from operating in New York State as an unlicensed gambling business, require it to collect illegal proceeds, compensate harmed users and pay a fine equal to three times the amount of illegal income.

Conflicts over federal and state jurisdiction

Behind the lawsuit is a fundamental disagreement over predictive market positioning. Polymarket and its competitor Kalshi argue that they are not gambling sites, but rather federally regulated exchanges which offer CFDs (a type of derivative), and therefore should be regulated by the Commodity Futures Trading Commission (CFTC) instead of state gaming laws.

The CFTC took the side of platforms and sued nine states in 2026, claiming exclusive national jurisdiction over the industry. At the same time, regulators like SEC are also advancing a regulatory framework for crypto prediction markets.

The latest in a series of law enforcement actions

James and Hochul sued another prediction market Kalshi earlier this July; in April, James sued Coinbase and Gemini on similar charges; and earlier this month she also recovered $8 million from a headline lottery casino carrier .

It is worth noting that Polymarket was launched on United States in December 2025, initially focused on sports betting, with plans to expand into a broader market. Less than one year after the launch, it was sued by the state government and its expansion at United States .

Follow-up

The central controversy in the case is whether prediction markets fall under the jurisdiction of the CFTC or state gaming authorities. This conclusion will directly determine if platforms such as Polymarket, Kalshi and others can legally operate in United States states, which is the next variable that needs to be tightened up for the entire crypto-prediction market industry.