On Tuesday, New York initiated legal proceedings against Coinbase and Gemini, thereby joining the ranks of states arguing that prediction market contracts involving sports, entertainment, and elections are in contravention of state laws regulating gambling. According to the lawsuits filed, the prediction market products offered by Coinbase and Gemini are essentially unlicensed gambling products, as evidenced by their marketing strategies and the role they assume as bookmakers on their respective platforms. The office of the New York Attorney General described the functioning of these prediction market platforms, referring to users as 'bettors' and emphasizing that 'each contract is a bet.' Furthermore, the lawsuits contend that these platforms facilitate betting among individuals between the ages of 18 and 21, which is prohibited in New York as the state bars anyone under 21 from participating in mobile app gambling. The lawsuit against Coinbase stated, '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 first state to take legal action against providers of prediction markets over their products related to sports and entertainment, as states like Nevada and Washington have also filed similar lawsuits, arguing that at least the sports-related bets constitute gambling rather than federally regulated swaps.
This issue is currently being deliberated upon by multiple appeals courts and is likely to be taken up by the U.S. Supreme Court.
In response, Coinbase's Chief Legal Officer, Paul Grewal, expressed on X (formerly Twitter) that 'prediction markets are federally regulated national exchanges' and that Coinbase would advocate for federal oversight. A spokesperson for Gemini declined to comment on the matter.
Commodity Futures Trading Commission Chairman Mike Selig has argued that prediction markets, including those related to sports, fall under the 'exclusive jurisdiction' of his agency. The CFTC has taken legal action against Arizona, Connecticut, and Illinois to prevent them from pursuing charges against prediction market providers and has also filed to join another case in Nevada to defend these providers.
Kalshi, a major prediction market provider, was not named as a defendant in the lawsuit filed on Tuesday. Last fall, the company had preemptively sued the New York State Gaming Commission, seeking a federal court ruling that state gambling laws do not apply to its platform. This case is still pending in the Southern District of New York courthouse. New York State Attorney General Letitia James released a statement describing both Gemini and Coinbase's products as 'illegal gambling operations.' She emphasized, 'Gambling by another name is still gambling, and it is not exempt from regulation under our state laws and Constitution.'