In a lawsuit filed on Tuesday, New York alleged that Coinbase and Gemini's prediction market offerings are essentially unlicensed gambling products. The lawsuit pointed to the companies' advertising of their prediction markets and their role as bookmakers, describing user behavior as "betting" and each contract as a "bet". Additionally, the suits argued that the platforms allow 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 stated, "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 action against prediction market providers over their sports and entertainment products, as states like Nevada and Washington have filed similar lawsuits.
The issue is currently before multiple appeals courts and is likely to be heard by the U.S. Supreme Court.
Coinbase's Chief Legal Officer, Paul Grewal, responded by stating that prediction markets are federally regulated national exchanges and that Coinbase would fight for federal oversight. Gemini declined to comment on the matter. Commodity Futures Trading Commission Chairman Mike Selig argued that prediction markets, including sports-related contracts, fall under his agency's exclusive jurisdiction. The CFTC has taken action 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 and 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 stated that both Gemini and Coinbase's products were "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."