In a recent lawsuit, New York has taken action against Coinbase and Gemini, alleging that their prediction market offerings constitute unlicensed gambling products. The lawsuit claims that these platforms have been operating in violation of state laws, allowing users to place bets on sports, entertainment, and election outcomes. According to the lawsuit, the platforms' prediction markets are essentially gambling operations, where users can stake money on the outcome of events beyond their control. The NYAG's office has described the behavior of these platforms as facilitating betting, with users being referred to as "bettors" and each contract being considered a bet.
Furthermore, the lawsuit argues that the platforms have been allowing individuals between the ages of 18 and 21 to participate, despite New York's laws prohibiting anyone under 21 from engaging in mobile app gambling. The lawsuit states, "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." This development is part of a broader trend, with Nevada, Washington, and other states having filed similar lawsuits against prediction market providers. The issue is currently being considered by multiple appeals courts and is likely to be reviewed by the U.S.
Supreme Court. In response to the lawsuit, Coinbase's Chief Legal Officer Paul Grewal has asserted that prediction markets are federally regulated national exchanges and that the company will fight for federal oversight. Gemini declined to comment on the matter. Commodity Futures Trading Commission Chairman Mike Selig has also weighed in, arguing that prediction markets fall under the agency's exclusive jurisdiction.
The CFTC has taken action to block charges against prediction market providers in several states and has filed to join another case in Nevada to defend these providers. Kalshi, a major prediction market provider, was not named as a defendant in the lawsuit, having preemptively sued the New York State Gaming Commission last fall to seek 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 by another name is still gambling, and it is not exempt from regulation under our state laws and Constitution."