New York Attorney General Letitia James and Governor Kathy Hochul filed a lawsuit Thursday against crypto-based prediction market Polymarket, alleging the platform has been operating an unlicensed gambling business in the state.

An investigation by the Attorney General's office concluded that Polymarket's markets fall under New York's legal definition of gambling, since users stake money on uncertain outcomes they cannot control.

According to the complaint, Polymarket never secured a license from the New York State Gaming Commission, allowing it to avoid the taxes that licensed casinos and mobile sportsbooks pay. That revenue helps fund public schools, youth sports programs and treatment for problem gambling.

The legal action arrives as federal regulators, including the Securities and Exchange Commission and the Commodity Futures Trading Commission (CFTC), work to establish oversight of crypto-powered prediction markets.

Polymarket and rival Kalshi maintain that they are not gambling operators at all, but rather federally regulated exchanges offering “event contracts,” a type of derivative, which would place them under the jurisdiction of the CFT rather than state gaming laws. The CFTC shares that view and has sided with the platforms: in 2026 it sued nine states, arguing it should hold exclusive nationwide authority over the industry. New York's filing wades directly into that dispute, which will help determine whether platforms like Polymarket answer to state gaming regulators or to federal exchange oversight.

Thursday's complaint further alleges that the platform is accessible to users aged 18 to 20, even though New York requires mobile sports bettors to be at least 21.

“By skirting New York's laws, Polymarket is targeting the most vulnerable,” James said. Hochul added that the company had “knowingly” violated state law and exposed underage users to risk.

The state is asking a court to bar Polymarket from operating as an unlicensed gambling business in New York. It is also seeking forfeiture of the company's illegal gains, repayment to harmed users, and fines equal to three times those gains — a package that underscores how much of the company's New York business is now on the line.

The suit is the latest in a string of New York enforcement actions targeting gambling-adjacent platforms. James and Hochul sued rival prediction market Kalshi in July, and James sued Coinbase and Gemini in April over similar claims. Earlier this month, James secured $8 million from the leading operator of sweepstakes casinos. Taken together, the actions point to a sustained state push against platforms it deems gambling operations, even as the industry insists it belongs under federal jurisdiction.

Polymarket launched in the United States in December 2025, initially allowing users to bet on sporting events, with plans to expand into markets covering a wide range of topics. Its US expansion now unfolds against a backdrop of mounting state scrutiny.

This article first appeared on Bitcoin Magazine and is written by Mathew Di Salvo.