New York Attorney General Letitia James has sued prediction-market operator Polymarket, accusing the company of running an illegal gambling operation in the state. Prediction markets let users trade event contracts whose payouts depend on the outcome of real-world events, such as sports results. The legal action escalates a broader fight across the United States over whether prediction markets should be regulated as financial markets or as gambling businesses.

According to the complaint, Polymarket offered New York residents event contracts on sporting events without first obtaining a license from the state's Gaming Commission. New York said the contracts meet the legal definition of gambling because their outcomes are uncertain and lie outside the control of the bettors who purchase them.

Through the lawsuit, the state is seeking to stop Polymarket from operating as an unlicensed business, along with the forfeiture of alleged illegal gains, restitution for affected users, and fines equal to three times the gains the company made through the alleged violations.

"By running an unlicensed gambling operation, Polymarket has done more than just knowingly violate state law, they have put New Yorkers at risk, especially those underage who are most vulnerable to problem gaming," Governor Kathy Hochul said in a joint press release announcing the lawsuit.

New York also accused Polymarket of "sidestepping its obligation to pay taxes like licensed casinos and mobile sports gambling platforms do." According to the release, "This tax revenue from gambling regulation funds public schools, sports programs for underserved youth, and problem gambling education and treatment."

Polymarket launched its U.S. platform in December 2025, initially offering contracts tied to sporting events before expanding into other markets. New York's action follows a similar lawsuit against rival prediction-market operator Kalshi in July 2026, as well as cases involving prediction-market businesses operated by Coinbase and Gemini.

In those earlier cases, the state argued that "gambling by another name is still gambling." Major League Baseball has also warned that gambling rules apply to prediction markets, and enforcement attention has intensified amid escalating insider trading risks on the platforms.

Polymarket, for its part, has filed a lawsuit against James and other New York officials seeking to block state regulation of its prediction markets. The company argues that the U.S. Commodity Futures Trading Commission (CFTC) holds exclusive authority over the contracts.

The dispute reflects a widening conflict between state regulators and federal authorities over the legal status of prediction markets. The CFTC has asserted federal authority over the sector, while several states have argued that contracts allowing users to wager on sports and other events fall within state gambling laws. How that conflict is resolved will shape whether event contracts operate under a single federal framework or under state-by-state licensing, tax, and enforcement regimes.

The competing lawsuits could add to a growing split among U.S. courts over which level of government holds authority over prediction markets, potentially setting up a Supreme Court decision on the industry's regulatory framework. The cases against Kalshi, Coinbase, and Gemini center on the same question, giving courts multiple opportunities to weigh in as the industry awaits a clearer regulatory picture.

Source: BitcoinKE