In a recent lawsuit, New York has targeted Coinbase and Gemini, alleging that their prediction market offerings constitute unlicensed gambling products. The lawsuit points out how these companies have advertised their prediction markets and acted as bookmakers, further emphasizing that users are essentially 'bettors' and each contract is a bet. Furthermore, the platforms allow individuals between the ages of 18 and 21 to place bets, which contradicts New York's law that prohibits anyone under 21 from participating in mobile app gambling.
The lawsuit against Coinbase highlights that the platform's offerings are quintessentially gambling, as they involve staking money on the outcome of events not under the bettor's control, with the understanding of receiving something of value based on the outcome. This is not an isolated incident, as other states like Nevada and Washington have also taken legal action against prediction market providers, arguing that such bets are indeed a form of gambling and not federally regulated swaps.
The issue is currently being deliberated in multiple appeals courts and is likely to be reviewed by the U.S. Supreme Court. In response, Coinbase's Chief Legal Officer, Paul Grewal, has stated that prediction markets are federally regulated national exchanges and the company will advocate for federal oversight.
Gemini, on the other hand, has declined to comment. The Commodity Futures Trading Commission Chairman, Mike Selig, has expressed the view that prediction markets fall under his agency's exclusive jurisdiction, leading the CFTC to file suits against several states to prevent them from charging prediction market providers.
Kalshi, a major prediction market provider, was not named in the lawsuit but had previously taken legal action against 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 has stated that both Gemini and Coinbase's products are 'illegal gambling operations,' emphasizing that gambling, regardless of its form, is subject to state laws and regulations.