New York City Council Speaker Julie Menin has sent formal letters to Kalshi, Coinbase, Polymarket, and Gemini Titan, notifying each company that the Council has launched an investigation into alleged "false, deceptive, unconscionable, and objectionable marketing practices." The probe arrives amid an escalating conflict between New York and the prediction market industry, marked by a major state lawsuit and a federal emergency order issued within a two-week span. Prediction markets — platforms where users trade event-based contracts on outcomes ranging from elections to sports — have expanded rapidly in recent years, bringing a surge in retail participation and intensifying scrutiny from regulators still determining how existing consumer protection frameworks apply to the sector.

Allegations Against Kalshi and Polymarket

The investigation will examine a range of advertising tactics employed by the platforms. According to the Council, these include undisclosed influencer marketing, videos depicting trades on counterfeit websites designed to resemble Polymarket, promotion of winning bets that actually resulted in losses, and the promotion of insider trading.

The probe builds on a Wall Street Journal investigation published in June, which revealed that Polymarket enlisted social media influencers to falsely claim they had profited from bets they had not personally funded. Subsequently, CNBC reported that Polymarket had begun revising its marketing strategy after the Commodity Futures Trading Commission (CFTC) initiated its own separate investigation into the platform.

Harvey Epstein, chair of the Committee on Consumer and Worker Protection, emphasized the urgency of the matter, citing the prediction market's estimated $300 billion valuation and the need to assess the legality of the advertising practices in question.

Why Prediction Markets Operate Under Different Rules Than Casinos

Prediction markets are able to advertise under different rules than casinos because these platforms register their contracts as federally regulated financial instruments rather than gambling wagers. These contracts fall under the Commodity Exchange Act, which grants the CFTC primary oversight of derivatives markets and has historically preempted many state-level restrictions. As a result, traditional gambling advertising restrictions and certain consumer protection laws have not been applied to them — a gap that state regulators are now moving to close.

Menin, who previously served as the state's head of consumer affairs, stated her intent to use the Council's authority to protect residents, particularly minors and young adults, from predatory advertising. The Council added that the investigation will help determine what new legislation, enforcement actions, or public health measures may be needed to close the regulatory gap.

New York Probe May Collide With Federal Authority

The investigation is the latest development in an ongoing conflict that has spanned several months. On July 31, the State of New York filed suit against Kalshi after the platform was denied a preliminary injunction bid against state officials. The state contends that Kalshi has been operating a sports prediction market without the required license.

However, on August 11, the CFTC invoked emergency authority to keep Kalshi operating in New York, asserting that the state's attempt to shut the platform down posed a threat to the entire prediction market industry. CFTC Chairman Mike Selig stated that states have "no business regulating these interstate financial markets." The decision marks the second occasion on which the CFTC has intervened to protect Kalshi, having previously done so in a Michigan court dispute. The outcome of the confrontation could set a significant precedent for whether federal commodities law preempts state consumer protection authority over prediction market operators — a legal question that remains unresolved.