In a recent lawsuit, New York has targeted Coinbase and Gemini, alleging that their prediction market products, which encompass sports, entertainment, and election outcomes, are in violation of state gambling regulations. The lawsuit claims that these products are essentially unlicensed gambling offerings, citing how the companies have advertised and facilitated these markets, acting as bookmakers.
Furthermore, the lawsuit highlights that the platforms allow individuals between the ages of 18 and 21 to participate, despite New York's law prohibiting anyone under 21 from engaging in mobile app gambling. The suit against Coinbase explicitly states that the prediction market operates as a form of gambling, where users stake money on outcomes beyond their control, with the expectation of receiving something of value based on the outcome. This legal action follows similar suits filed by other states, including Nevada and Washington, arguing that such bets are not federally regulated swaps but rather gambling activities.
The issue is currently pending before multiple appeals courts and is likely to be reviewed by the U.S. Supreme Court.
In response, Coinbase's Chief Legal Officer, Paul Grewal, has asserted that prediction markets fall under federal regulation and the company will advocate for federal oversight. Gemini has declined to comment on the matter.
The Commodity Futures Trading Commission Chairman, Mike Selig, has also weighed in, arguing that prediction markets, including those related to sports, are under the exclusive jurisdiction of his agency. The CFTC has taken legal action against several states to prevent them from pursuing charges against prediction market providers. Another significant player in the prediction market, Kalshi, was not named in the lawsuit but has previously taken legal action against 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 has stated that both Gemini and Coinbase's products constitute 'illegal gambling operations,' emphasizing that gambling, regardless of its form, is subject to state laws and regulations.