New York Attorney General Letitia James and Governor Kathy Hochul announced a lawsuit on Thursday against Polymarket US, accusing the prediction market platform of operating an illegal gambling operation in New York without a license. The action, filed in a Manhattan state court, marks the latest escalation in a widening national dispute over whether prediction markets constitute regulated financial products or unlicensed gambling. Within hours, Polymarket responded with its own federal lawsuit against the attorney general and other state officials, setting the stage for a closely watched jurisdictional battle.
Details of the State’s Case
The lawsuit alleges that Polymarket has violated New York gambling laws by offering markets to state residents without a license from the State Gaming Commission. According to the complaint, the state is seeking to block the company from operating without a gambling license and to recover gains the state characterizes as illegal.
“By running an unlicensed gambling operation, Polymarket has done more than just knowingly violate state law, they have put New Yorkers at risk,” the attorney general’s office said in announcing the action.
The suit mirrors a complaint filed in July against Kalshi, a competing prediction market operator. Other companies, including Coinbase and Gemini, have also faced legal action from the attorney general’s office related to prediction market offerings. Under New York law, any operator offering gambling to residents must hold a state-issued license, and officials have argued that sports-related prediction markets amount to unlicensed betting that also diverts tax revenue from state coffers.
Polymarket’s Countersuit
On Thursday evening, Polymarket filed suit against Attorney General James and other state officials in Manhattan federal court. The company is seeking a declaration that New York cannot enforce its civil and criminal gambling laws against the platform, arguing that its products are not gambling but rather federally regulated event contracts.
The dueling filings underscore the central legal question facing the industry: whether prediction markets – contracts that allow users to trade on the outcomes of elections, sporting events, and other events – fall under state gambling authority or federal oversight of derivatives and commodities.
A Broader Industry Conflict
The dispute is part of a larger confrontation between state regulators and the rapidly growing prediction market sector. States have pursued numerous lawsuits arguing that sports-related event contracts violate their gambling statutes, while the federal administration has backed operators Kalshi and Polymarket in their challenge to state-level restrictions. Earlier this year, Kalshi lost a bid to prevent New York from regulating its prediction markets, and litigation continues in multiple jurisdictions.
The industry’s rapid expansion has also drawn scrutiny beyond gambling questions. Members of Congress have introduced legislation addressing market integrity concerns, and federal prosecutors have pursued cases involving the misuse of nonpublic information in connection with event contracts.
