In a lawsuit filed on Tuesday, New York has sued both Coinbase and Gemini, claiming that their prediction market offerings, which involve sports, entertainment, and elections, are essentially unlicensed gambling products. According to the lawsuit, these platforms have been advertising their prediction markets and acting as bookmakers, which is against state laws. The lawsuit also points out that these platforms allow users between the ages of 18 and 21 to place bets, despite New York's laws prohibiting anyone under 21 from engaging in mobile app gambling. The NYAG's office has described the behavior of these prediction market platforms as allowing users to place bets, with each contract being a bet.
The lawsuit argues that what these platforms offer is quintessentially gambling, as it involves staking or risking money on the outcome of a contest of chance or a future event not under the bettor's control, with the understanding that the bettor will receive something of value if a certain outcome occurs. This is not the first time states have sued prediction market providers over their sports and entertainment products, as Nevada, Washington, and other states have filed similar lawsuits, arguing that at least the sports-related bets are indeed bets and not federally regulated swaps. The issue is currently before multiple appeals courts and is likely to be heard by the U.S.
Supreme Court. In response, Coinbase's Chief Legal Officer Paul Grewal stated that prediction markets are federally regulated national exchanges and that Coinbase would fight for federal oversight.
Gemini declined to comment on the matter. The Commodity Futures Trading Commission Chairman has argued that prediction markets, including sports-related contracts, fall under the agency's exclusive jurisdiction, and the CFTC has filed suits to block 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 stated that both Gemini and Coinbase's products are 'illegal gambling operations,' emphasizing that gambling by any other name is still subject to regulation under state laws and the Constitution.