In a recent lawsuit filed on Tuesday, New York has taken action against Coinbase and Gemini, joining other states in arguing that prediction market contracts involving sports, entertainment, and elections are in violation of state laws governing gambling. According to the lawsuit, the prediction market offerings provided by Coinbase and Gemini are essentially unlicensed gambling products, as evidenced by their advertising and role as bookmakers. The New York Attorney General's office has described the behavior of these platforms, referring to users as 'bettors' and characterizing each contract as a 'bet'.
Furthermore, the lawsuit alleges that the platforms allow individuals between the ages of 18 and 21 to place bets, which is prohibited in New York for those under 21 using mobile apps. The lawsuit against Coinbase 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 only state to take action against prediction market providers for their sports and entertainment products, as other states like Nevada and Washington have also filed lawsuits, arguing that at least sports-related bets are indeed 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, Coinbase Chief Legal Officer Paul Grewal stated that 'prediction markets are federally regulated national exchanges' and that Coinbase would advocate for federal oversight. Gemini, on the other hand, declined to comment. Commodity Futures Trading Commission Chairman Mike Selig has argued that prediction markets, including sports-related contracts, fall under the exclusive jurisdiction of his agency. The CFTC has taken action 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 released a statement, describing both Gemini and Coinbase's products as 'illegal gambling operations', and emphasizing that 'gambling by another name is still gambling, and it is not exempt from regulation under our state laws and Constitution'.