In a recent lawsuit filed on Tuesday, New York has sued both Coinbase and Gemini, contending that their prediction market offerings, which encompass sports, entertainment, and elections, are in direct violation of state laws regulating gambling. According to the lawsuit, the prediction market products offered by Coinbase and Gemini are essentially unlicensed gambling products.
This assertion is based on how these companies have advertised their prediction markets and their role as bookmakers within these platforms. The New York Attorney General's office has further described the behavior of these prediction market platforms, referring to users as 'bettors' and emphasizing that each contract constitutes a bet. Additionally, the lawsuit argues that these platforms permit individuals between the ages of 18 and 21 to place bets, which contravenes New York's laws prohibiting anyone under 21 from engaging in mobile app gambling. 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 first state to take legal action against providers of prediction markets for their sports and entertainment products.
Other states, including Nevada and Washington, have 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 expressed that 'prediction markets are federally regulated national exchanges' and that Coinbase would advocate for federal oversight. A spokesperson for Gemini declined to comment. Commodity Futures Trading Commission Chairman Mike Selig has argued that prediction markets, including those related to sports, fall under his agency's exclusive jurisdiction.
The CFTC has taken legal action against several states to prevent them from charging 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. New York State Attorney General Letitia James stated that the products offered by Gemini and Coinbase 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.'