The legal battle over prediction markets tightened further on Thursday, when New York Attorney General Letitia James filed a lawsuit against Polymarket, accusing the platform of operating an unlicensed gambling business. The suit, filed in Manhattan state court, is the latest move in a widening regulatory campaign that has already targeted Kalshi, Coinbase, and Gemini over similar event-contract offerings.
According to the New York complaint, Polymarket's event contracts are “quintessentially gambling” under state law. The filing also alleges that the platform allowed users aged 18 to 20 to trade, despite New York's minimum age of 21 for mobile sports betting. Attorney General James described the situation as a public-health risk, warning that Polymarket exposed New Yorkers to gambling addiction with few protections. Governor Kathy Hochul added that the company knowingly broke state law, and the state is seeking civil fines, disgorgement of illegal profits, and restitution for affected customers.
Polymarket responded that it was disappointed by the lawsuit. Chief Legal Officer Neal Kumar said the company had tried to work directly with state officials and offered to discuss its user protections, but the state chose litigation instead. The company notes that it received Commodity Futures Trading Commission approval before relaunching in the U.S. last December and has support from investors including 1789 Capital.
The New York action follows a series of similar enforcement steps. In July, James sued Kalshi, and in April she filed petitions against Coinbase Financial Markets and Gemini Titan. Connecticut separately announced cease-and-desist orders on September 10 against nine prediction-market companies, including Robinhood and Crypto.com, over unlicensed gambling allegations. That move came just two days after Robinhood unveiled a football expansion with Crypto.com, routing selected event contracts through its exchange infrastructure. Robinhood reported 13.6 billion event contracts traded in the second quarter of 2026, illustrating the commercial stakes behind the regulatory fight.
The central dispute is whether federal derivatives law displaces state gambling rules for event contracts. The CFTC has asserted its own jurisdiction and is defending lawsuits against Arizona, Connecticut, and Illinois. Federal appeals courts are split: the Third Circuit upheld preliminary protection for Kalshi against New Jersey enforcement, while the Ninth Circuit later upheld removal of similar protection against Nevada. Legal experts stress that both rulings came from preliminary-injunction proceedings, not final merits judgments. Earlier in September, New Jersey asked the U.S. Supreme Court to review its own case against Kalshi, a step that could lead to an industry-wide ruling. As Manatt lawyers noted, if state gambling requirements prevail, operators could face state-by-state licensing, product classification, and enforcement risk.
Amid the courtroom clashes, crypto businesses are positioning themselves as infrastructure and payment providers across competing models. DraftKings expanded its event-contract offering through an agreement with Crypto.com in February, while the Coalition for Prediction Markets has brought together Kalshi, Underdog, Robinhood, Coinbase, and Crypto.com. Stablecoins have been discussed as a potential settlement route, though the article cautions that exchange partnerships do not automatically put Bitcoin in a customer's wallet. Circle's USDC terms include address-blocking and freezing powers, underscoring that stablecoin payments are not immune from legal orders. Connecticut's September action also sought information from payment providers and app stores, showing how regulatory disputes can extend beyond the platforms themselves.
For now, prediction-market companies remain caught between conflicting state and federal rules. The lawsuits and cease-and-desist orders signal that the legal department—not just the marketing team—will shape how crypto businesses participate in the sports-betting and event-contract landscape.
