On Tuesday, New York filed lawsuits against Coinbase and Gemini, arguing that their prediction market offerings, which involve sports, entertainment, and elections, are in breach of state gambling regulations. According to the lawsuits, the prediction market products offered by Coinbase and Gemini are essentially unlicensed gambling products, as evidenced by their marketing strategies and the role they play as bookmakers on their platforms.
The New York Attorney General's office described the behavior of these prediction market platforms, referring to users as 'bettors' and stating that 'each contract is a bet.' The lawsuits also pointed out that these platforms allow individuals between the ages of 18 and 21 to place bets, despite New York's law prohibiting anyone under 21 from gambling on mobile apps. The suit against Coinbase stated, 'As described above, what Respondent offers through its platform is quintessentially gambling: It allows a bettor to stake or risk money upon the outcome of a contest of chance or a future contingent event not under the bettor’s control or influence, upon an agreement or understanding that he will receive something of value in the event of a certain outcome.' New York is not the only state to take legal action against prediction market providers over their sports and entertainment products, as other states like Nevada and Washington have also filed similar lawsuits, arguing that these bets are indeed gambling and not federally regulated swaps. This issue is currently before multiple appeals courts and is likely to be heard by the U.S. Supreme Court.
In response, Coinbase's Chief Legal Officer Paul Grewal stated that 'prediction markets are federally regulated national exchanges' and that the company would fight for federal oversight. A Gemini spokesperson declined to comment. Commodity Futures Trading Commission Chairman Mike Selig has argued that prediction markets, including sports-related contracts, fall under his agency's exclusive jurisdiction.
The CFTC has filed lawsuits against several states to block them from bringing charges against prediction market providers. Kalshi, a major prediction market provider, was not named as a defendant and had previously sued the New York State Gaming Commission, seeking a ruling that state gambling laws do not apply to its platform.
New York State Attorney General Letitia James stated that both Gemini and Coinbase's products are 'illegal gambling operations,' adding that 'gambling by another name is still gambling, and it is not exempt from regulation under our state laws and Constitution.'