The state of New York has filed a lawsuit against Coinbase and Gemini, alleging that their predictive market offerings, which cover sports, entertainment, and elections, are in violation of state laws regulating gambling. According to the lawsuit, the predictive market products offered by Coinbase and Gemini are essentially unlicensed gambling products. This determination is based on how the companies have advertised their predictive markets and their role in managing the platforms.
The New York Attorney General's office has described the behavior of users on these platforms as 'bettors' and characterized each contract as 'a bet.' Furthermore, the lawsuit argues that these platforms allow individuals between the ages of 18 and 21 to place bets, which is against New York state law that prohibits anyone under 21 from participating in mobile app gambling. The lawsuit states, '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 such action, as Nevada, Washington, and several other states have also filed lawsuits against predictive market providers, contending that at least the sports-related bets should be classified as bets rather than 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 Chief Legal Officer Paul Grewal stated that 'prediction markets are federally regulated national exchanges' and that Coinbase would advocate for federal oversight. 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 Arizona, Connecticut, and Illinois to prevent them from pursuing charges against prediction market providers and has intervened in another case in Nevada to defend these providers.
Kalshi, a major prediction market provider, was not named as a defendant in the lawsuit. However, the company had previously sued 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 released a statement calling both Gemini and Coinbase's products 'illegal gambling operations.' She emphasized, 'Gambling by another name is still gambling, and it is not exempt from regulation under our state laws and Constitution.'