New York files lawsuit against Polymarket for illegal betting operation
The state of New York is continuing its crackdown against prediction market platforms, this time filing a lawsuit against Polymarket, alleging that the platform was running an illegal gambling operation in the state.
The lawsuit, QCX LLC (d/b/a Polymarket US), was filed in the New York Supreme Court by state attorney general Letitia James on Thursday, following an investigation led by the attorney general’s office that found that Polymarket was an “unlicensed gambling operation” targeting New Yorkers and that exposed them to financial risks.
“Our gambling laws exist to protect New Yorkers, prevent the potential harms of problem gambling, and ensure funding for educational and public benefit programs,” James commented in a press release.
“By skirting New York’s laws, Polymarket is targeting the most vulnerable and depriving New York families of critical services and support. My office will never hesitate to take action to defend our laws and keep New Yorkers safe,” she furthered.
The lawsuit argues that Polymarket’s operations meet the legal definition of gambling because of the uncertainty surrounding the outcomes of its event contracts. It also accuses the platform of failing to obtain a gambling license from the state’s gambling regulator, the New York State Gaming Commission (NYSGC).
The suit seeks to stop Polymarket from offering its event contracts in the state, as well as pay fines, forfeit all illegal gains and pay restitution to its New York users.
Polymarket was quick to countersue the state, seeking to move the lawsuit to a federal court instead. It also filed its own civil suit against James and the NYSGC, arguing that because it is federally regulated by the Commodity Futures Trading Commission, its event contracts do not fall under state gaming regulations.
Polymarket isn’t the only prediction market platform targeted by James. Earlier in July, James also filed a lawsuit against Kalshi, arguing that its event contracts amounted to illegal gambling and seeking US$36 billion in damages.
Charlotte Capewell brings her passion for storytelling and expertise in writing, researching, and the gambling industry to every article she writes. Her specialties include the US gambling industry, regulator legislation, igaming, and more.
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The Backstory
New York escalates a broader fight over event contracts
New York’s lawsuit against Polymarket is the latest step in a widening campaign by state officials to define prediction markets as gambling businesses, not financial exchanges. The action follows months of warnings, legislation and litigation aimed at platforms that let users buy contracts tied to uncertain outcomes, including sports, elections and other public events.
The central question is whether those contracts are federally regulated derivatives or wagers subject to state gambling laws. Polymarket and other operators have argued that oversight by the Commodity Futures Trading Commission places their products outside state gaming regimes. New York Attorney General Letitia James has taken the opposite position, saying the products expose residents to gambling risks without the licensing, age limits, responsible-gaming rules and tax obligations imposed on legal sportsbooks and casinos.
That argument is not limited to Polymarket. Earlier in July, New York filed a similar case against Kalshi, accusing the company of operating an illegal gambling business and seeking sweeping penalties. The Polymarket suit shows that the state is applying the same legal theory across the prediction-market sector, increasing pressure on an industry that has expanded quickly through sports-linked contracts and mainstream trading interfaces.
Kalshi became the test case for state authority
Before the Polymarket complaint, Kalshi had already become the leading test of how far states can go in regulating event contracts. In New York’s lawsuit against Kalshi, officials said the company allowed users to wager on sports and other events without a license from the New York State Gaming Commission. The state said the contracts fit New York’s definition of gambling because they involved uncertain outcomes outside the user’s control.
The Kalshi complaint also sharpened the policy stakes. New York officials highlighted that Kalshi was available to users ages 18 to 20, while legal mobile sports betting in the state is restricted to customers 21 and older. They argued that the age gap allowed younger adults to access products that functioned like sports betting but lacked the consumer protections attached to licensed operators. The state sought to stop Kalshi’s operations in New York, recover restitution for consumers and collect financial penalties that outside legal observers said could reach US$36 billion.
That case followed a cease-and-desist order from the gaming commission and an adverse ruling for Kalshi in federal court. U.S. District Judge Analisa Torres blocked Kalshi’s request for a preliminary injunction, allowing New York to continue enforcing its gambling laws while the dispute moved forward. For regulators, the decision offered early support for the view that state gambling rules can apply even when a company markets its products as federally regulated event contracts.
Federal intervention raised the stakes
The conflict intensified when the CFTC intervened on Kalshi’s behalf. In an emergency order allowing Kalshi to continue operating in New York, CFTC Chairman Michael Selig said the agency was asserting federal jurisdiction over prediction markets and rejected the idea that states should regulate them through gambling statutes.
The CFTC’s position reframed the dispute from a state enforcement action into a federalism fight. The agency said Congress did not intend derivatives exchanges to be subject to a state-by-state patchwork of gambling rules. New York, by contrast, argued that the labels used by operators do not override the practical effect of products that resemble wagers on sports and public events.
That clash matters for Polymarket because the company has adopted the same core defense: that federal commodities regulation preempts state gaming enforcement. By countersuing New York and seeking to move the case to federal court, Polymarket is trying to place its dispute in the same legal lane as Kalshi’s. A favorable federal ruling for either operator could limit state authority nationwide. A win for New York could embolden attorneys general and gaming regulators to pursue similar claims against prediction-market platforms in other states.
Other states have moved in the same direction
New York is not acting alone. Massachusetts Attorney General Andrea Joy Campbell filed a lawsuit accusing Kalshi of illegal sports wagering operations, saying its yes-or-no sports contracts closely resembled moneyline, point spread and over-under bets offered by licensed sportsbooks. The Massachusetts complaint said Kalshi had not applied for a sports wagering license and was bypassing safeguards required of regulated operators.
Massachusetts also focused on age limits and responsible-gaming measures. State officials said Kalshi allowed 18- to 20-year-olds to participate even though online sports betting is restricted to people 21 and older. They also said the company did not provide protections such as compliant deposit limits, maximum wagers or sufficient risk disclosures. Those allegations mirror New York’s emphasis on youth access, problem-gambling protections and the integrity of state regulatory systems.
The state-level cases reflect growing unease about the speed at which prediction markets have moved into sports. Licensed sportsbooks operate under detailed state rules covering advertising, identity verification, geolocation, responsible gaming, taxation and anti-money laundering controls. Regulators say prediction-market operators are competing for the same customers while avoiding many of those obligations. Operators say they are offering financial contracts, not gambling products, and that inconsistent state enforcement would undermine national markets.
Warnings preceded the courtroom push
The legal actions followed a period of public warnings and legislative proposals. Ahead of the Super Bowl, James issued a warning about prediction-market risks, telling consumers that many platforms did not provide the same protections as regulated gambling sites. The warning came as sports-related contracts drew attention around one of the largest betting events of the year.
New York lawmakers also introduced bills intended to tighten control over prediction-market platforms. One proposal would require platforms to obtain a state license and comply with protections similar to those imposed on sportsbooks. Another would ban many event contracts, including specific sports and political markets, while adding age limits and marketing restrictions. Those proposals showed that the state’s concerns were not confined to enforcement agencies; they were also becoming part of a broader legislative response.
The Super Bowl timing underscored why regulators see urgency. Sports contracts can be marketed and consumed much like bets, especially when framed around binary outcomes and short-term events. The easier those products are to access through online platforms, the more they challenge the boundaries between investing, speculation and gambling. That ambiguity is at the core of the Polymarket case.
A wider crackdown on unlicensed online gambling
New York’s action against Polymarket also fits a broader crackdown on online gambling models that officials say operate outside state law. The attorney general recently secured an US$8 million settlement from sweepstakes casino operator VGW Holdings, which had offered products through Chumba Casino, Global Poker and LuckyLand Slots. State officials said the platforms used virtual coins that could be tied to real-money spending and prizes, making them illegal gambling under New York law.
That case is different from the prediction-market litigation, but the enforcement logic is similar. In both areas, companies have argued that their products fall outside traditional gambling definitions because of their structure or terminology. New York has responded by focusing on function: whether users risk value on uncertain outcomes for the chance to receive value in return.
For Polymarket, the stakes extend beyond its New York business. The lawsuit could help determine whether prediction markets remain primarily under federal commodities oversight or face state-by-state gambling enforcement. It also could influence how platforms design sports, political and cultural event contracts, how they verify age and location and whether they must meet the same consumer-protection standards as licensed gambling operators. New York’s message is that innovation in online wagering will not exempt companies from gambling laws if the state believes the product operates like a bet.
