In a recent lawsuit, New York has targeted Coinbase and Gemini, alleging that their prediction market offerings constitute unlicensed gambling products. According to the lawsuit, these platforms have been advertising their prediction markets and acting as bookmakers, which is deemed to be in contravention of state laws.
The lawsuit also highlights the fact that users of these platforms are referred to as 'bettors' and that each contract is essentially a bet. Furthermore, the platforms have been accused of allowing 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 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.' New York is not the only state to take action against prediction market providers, with Nevada, Washington, and other states having filed similar lawsuits. The issue is currently before multiple appeals courts and is likely to be heard by the U.S.
Supreme Court. In response to the lawsuit, Coinbase's Chief Legal Officer Paul Grewal has stated that prediction markets are federally regulated national exchanges and that the company will fight for federal oversight.
Gemini, on the other hand, has declined to comment. The Commodity Futures Trading Commission Chairman has argued that prediction markets fall under his agency's exclusive jurisdiction, and the CFTC has filed suit 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 in the lawsuit, having preemptively sued the New York State Gaming Commission last fall. New York State Attorney General Letitia James has stated that both Gemini and Coinbase's products are 'illegal gambling operations,' adding that 'gambling by another name is still gambling, and it is not exempt from regulation under our state laws and Constitution.'