In a recent lawsuit, New York has targeted Coinbase and Gemini, alleging that their prediction market contracts, which involve sports, entertainment, and elections, are in breach of state gambling regulations. According to the lawsuit, the prediction market offerings provided by Coinbase and Gemini are essentially unlicensed gambling products, as evidenced by their marketing strategies and the role they play as bookmakers on their platforms.
The New York Attorney General's office has described the behavior of these prediction market platforms, referring to users as 'bettors' and emphasizing that 'each contract is a bet.' Furthermore, the lawsuit argues that these 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 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 only state to take action against prediction market providers over their sports and entertainment products, as Nevada, Washington, and other states have also filed similar lawsuits, arguing that at least the sports-related bets are indeed bets 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.
In response, Coinbase Chief Legal Officer Paul Grewal stated that 'prediction markets are federally regulated national exchanges' and that Coinbase would fight for federal oversight. A spokesperson for Gemini declined to comment. Commodity Futures Trading Commission Chairman Mike Selig has argued that prediction markets, including sports-related contracts, fall under his agency's 'exclusive jurisdiction.' The CFTC has filed lawsuits against Arizona, Connecticut, and Illinois to prevent them from bringing 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 and 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 both Gemini and Coinbase's products are 'illegal gambling operations,' emphasizing that 'gambling by another name is still gambling, and it is not exempt from regulation under our state laws and Constitution.'