In a recent development, New York has filed lawsuits against Coinbase and Gemini, contending that their prediction market offerings, which encompass sports, entertainment, and elections, are in contravention of state laws pertaining to gambling. According to the lawsuits, the prediction market products offered by Coinbase and Gemini are, in essence, unlicensed gambling products, as evidenced by their marketing strategies and the role they play as bookmakers on their respective platforms. The New York Attorney General's office has further elucidated the functioning of these prediction market platforms, referring to users as 'bettors' and emphasizing that each contract constitutes a bet. Moreover, the lawsuits argue that these platforms permit individuals between the ages of 18 and 21 to place bets, which is in violation of New York's laws that prohibit anyone under the age of 21 from engaging in mobile app gambling.
The suit against Coinbase succinctly captures the essence of the issue, stating, '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 first state to take legal action against providers of prediction markets for their sports and entertainment products, as states like Nevada and Washington have also filed similar lawsuits, arguing that at least the sports-related bets are, in fact, bets 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 to the lawsuit, Coinbase's Chief Legal Officer, Paul Grewal, has stated that prediction markets are federally regulated national exchanges and that Coinbase will advocate for federal oversight. A spokesperson for Gemini declined to comment on the matter. Commodity Futures Trading Commission Chairman Mike Selig has argued that prediction markets, including those related to sports, fall under the exclusive jurisdiction of his agency.
The CFTC has taken legal action against several states, including Arizona, Connecticut, and Illinois, to prevent them from pursuing charges against prediction market providers. Additionally, the CFTC has filed to join another case in Nevada to defend the prediction market providers. Kalshi, a major prediction market provider, was not named as a defendant in the lawsuit. However, the company had previously filed a lawsuit against the New York State Gaming Commission, seeking a federal court ruling that state gambling laws do not apply to its platform.
New York State Attorney General Letitia James has stated that the products offered by both Gemini and Coinbase constitute 'illegal gambling operations,' emphasizing that 'gambling by another name is still gambling, and it is not exempt from regulation under our state laws and Constitution.'