On Tuesday, New York initiated a lawsuit against Coinbase and Gemini, contending that their prediction market offerings, which encompass sports, entertainment, and elections, contravene state laws regulating gambling. According to the lawsuit, these platforms are essentially providing unlicensed gambling products, as evidenced by their advertising strategies and the role they assume as bookmakers.
The New York Attorney General's office characterized the behavior of these platforms, referring to users as 'bettors' and emphasizing that each contract constitutes a bet. Furthermore, the lawsuit argues that these platforms permit individuals between the ages of 18 and 21 to place bets, despite New York's prohibition on gambling for individuals under 21 on mobile apps. The lawsuit against Coinbase asserts, '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 the latest state to take legal action against prediction market providers, following the lead of states such as Nevada and Washington.
This issue is currently being deliberated upon by 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 advocate for federal oversight. Gemini declined to comment on the matter.
Commodity Futures Trading Commission Chairman Mike Selig has maintained that prediction markets, including sports-related contracts, fall under the exclusive jurisdiction of his agency. The CFTC has filed lawsuits against several states to prevent them from taking action against prediction market providers.
Kalshi, a prominent prediction market provider, was not named as a defendant in the lawsuit, having previously sued the New York State Gaming Commission to establish that state gambling laws do not apply to its platform. New York State Attorney General Letitia James stated that the products offered by Gemini and Coinbase constitute '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.'