In a recent lawsuit, the state of New York has taken action against Coinbase and Gemini, alleging that their prediction market offerings, which cover sports, entertainment, and elections, are essentially unlicensed gambling products. According to the lawsuit, the way these companies advertise their prediction markets and function as bookmakers on their platforms supports this claim.
The New York Attorney General's office described the behavior of these platforms, referring to users as 'bettors' and stating that 'each contract is a bet.' The lawsuit also points out that these platforms allow individuals between the ages of 18 and 21 to place bets, which is prohibited in New York for anyone under 21 using mobile apps. The lawsuit against Coinbase emphasized that the platform's offerings constitute gambling, as they allow bettors to stake money on the outcome of events not under their control, with the understanding that they will receive something of value if certain outcomes occur. This is not an isolated incident, as other states like Nevada and Washington have filed similar lawsuits, arguing that at least sports-related bets should be classified as bets rather than federally regulated swaps. This 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 advocate for federal oversight.
Gemini declined to comment on the matter. The 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 action to block charges against prediction market providers in several states and has filed to join another case in Nevada to defend these providers. Kalshi, a major prediction market provider, was not named in the lawsuit but 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 described the products offered by Gemini and Coinbase as 'illegal gambling operations,' emphasizing that gambling, regardless of its form, is subject to regulation under state laws and the Constitution.