On Tuesday, New York filed lawsuits against both Coinbase and Gemini, arguing that their predictive market contracts, which involve sports, entertainment, and elections, are in breach of state laws governing gambling. The lawsuits assert that the predictive market offerings provided by Coinbase and Gemini are essentially unlicensed gambling products. This is based on how the companies have advertised their predictive markets and their role as bookmakers on these platforms.
The office of the New York Attorney General described the behavior of the predictive market platforms, referring to users as 'bettors' and stating that 'each contract is a bet.' The lawsuits also point out that these platforms allow individuals between the ages of 18 and 21 to place bets, which contradicts New York's law that prohibits anyone under 21 from gambling on mobile apps. The suit against Coinbase 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.' New York is not the first state to take legal action against predictive market providers over their sports and entertainment products.
Other states, including Nevada and Washington, have filed similar lawsuits, arguing that at least the sports-related bets should be considered gambling and not federally regulated swaps. This 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, stated in a post that 'prediction markets are federally regulated national exchanges' and that Coinbase would advocate for federal oversight.
A spokesperson for Gemini declined to comment. The Chairman of the Commodity Futures Trading Commission, Mike Selig, has argued that predictive markets, including those related to sports, fall under the exclusive jurisdiction of his agency. The CFTC has taken legal action against several states to prevent them from charging predictive market providers and has filed to join another case in Nevada to defend these providers.
Kalshi, a major predictive market provider, was not named as a defendant. However, the company had previously sued the New York State Gaming Commission, seeking a federal court ruling that state gambling laws do not apply to its platform. New York State Attorney General Letitia James stated that the products offered by both Gemini and Coinbase are 'illegal gambling operations.' She added, 'Gambling by another name is still gambling, and it is not exempt from regulation under our state laws and Constitution.'