In a recent lawsuit, New York has sued cryptocurrency exchanges Coinbase and Gemini, alleging that their prediction market offerings constitute unlicensed gambling products. According to the lawsuit, the companies' advertising and role as bookmakers on their platforms demonstrate the true nature of their prediction markets. The New York Attorney General's office contends that users of these platforms are essentially 'bettors', with each contract functioning as a bet.
Furthermore, the lawsuit argues that the platforms allow individuals between the ages of 18 and 21 to place bets, which is in direct contravention of New York's laws prohibiting 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.' This legal action is the latest in a series of lawsuits filed by states, including Nevada and Washington, which claim that prediction market providers are offering illegal gambling products.
The issue is currently being deliberated by multiple appeals courts and is likely to be heard by the US Supreme Court. In response to the lawsuit, Coinbase's Chief Legal Officer, Paul Grewal, stated that prediction markets are federally regulated national exchanges and that the company would fight for federal oversight.
Gemini declined to comment on the matter. The Commodity Futures Trading Commission Chairman, Mike Selig, has argued that prediction markets fall under his agency's exclusive jurisdiction, and the CFTC has taken legal action to block charges against prediction market providers in several states. 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 to establish 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 another name is still gambling, and it is not exempt from regulation under our state laws and Constitution'.