New York, Polymarket sue each other over whether prediction markets in US are illegal gambling

[NEW YORK] New York’s attorney-general and Polymarket sued each other on Thursday (Sep 24), escalating a nationwide debate over who should regulate prediction markets in the US and whether they violate state laws against illegal gambling.

The lawsuit brought by Attorney-General Letitia James in a state court in Manhattan expands her effort to rein in prediction markets, following similar cases earlier in 2026 against Kalshi, Coinbase Financial Markets and Gemini Titan.

All were accused of operating without required New York State Gaming Commission gaming licences, encouraging problem gambling especially among people under age 21, and endangering people’s financial, emotional and physical health.

“By running an unlicensed gambling operation, Polymarket has done more than just knowingly violate state law, they have put New Yorkers at risk, especially those underage who are most vulnerable to problem gaming,” New York Governor Kathy Hochul said in a statement.

Polymarket fought back several hours later, saying the federal Commodity Futures Trading Commission (CFTC) has exclusive authority to regulate prediction markets.

It also said New York threatened irreparable harm by leaving it an “impossible choice” between obeying state regulators, thereby undermining its federal right to operate nationwide, or continuing operations and facing potentially “huge” criminal liability.

“This is an extraordinary assertion of state power squarely foreclosed by federal law,” Polymarket said in its lawsuit in Manhattan federal court. Chief Legal Officer Neal Kumar said Polymarket tried to work out its differences with state officials, but “they preferred the media hit.”

New York’s lawsuit seeks civil fines, the forfeiture of illegal gains, and full restitution to customers. Polymarket’s lawsuit seeks a declaration that New York cannot enforce its civil and criminal gambling laws against the company.

Trump’s son backs Polymarket

James’ case against Polymarket is the latest effort by US states to crack down on an industry that has soared in popularity since faring better than pollsters in predicting that Republican Donald Trump would beat Democrat Kamala Harris in the 2024 presidential election.

SEE ALSO

Prediction market boom finds a new challenger with Asia roots

Mark Zuckerberg directed Meta to create a prediction markets app

Those states are also at odds with the Trump administration, as well as the CFTC.

Federal appeals courts are divided over who should oversee the industry, raising the prospect the US Supreme Court may need to decide.

Founded in 2020, Polymarket bills itself as “the world’s largest prediction market.”

It was out of the US market for more than three years, but relaunched in December 2025 following a green light three months earlier from the CFTC.

Polymarket also gained an investment in 2025 from 1789 Capital, a venture capital firm backed by the president’s oldest son, Donald Trump Jr. He is a partner there and a Polymarket adviser.

New York said the value of Polymarket’s business reportedly exceeds US$20 billion.

‘Quintessentially gambling’

James views prediction markets as “quintessentially gambling” because they let people wager on events whose outcomes they do not control, and expect payouts if they win.

Her lawsuit included several recent examples at Polymarket, including whether the Los Angeles Dodgers baseball team would defeat the New York Mets on Jul 24 by more than 1.5 runs. The Dodgers won, 4-2.

New York also objected to Polymarket’s letting 18- to 20-year-olds use its platform, despite a minimum age of 21 under state law for mobile sports betting.

By allowing gambling without state oversight, Polymarket is “exposing New Yorkers to gambling addiction with few, if any, safeguards,” James said. REUTERS