The New York attorney general has taken legal action against cryptocurrency giants Coinbase and Gemini Titan, alleging that they are illegally operating gambling businesses in the state. Letitia James filed lawsuits in State Supreme Court in Manhattan, raising concerns about the companies’ recent foray into prediction markets that allow users to bet on sports and other events.
The lawsuits contend that neither Coinbase nor Gemini is licensed by the New York State Gaming Commission, rendering their operations unlawful. An additional point of contention highlighted by James is that both companies permitted individuals under the legal gambling age of 21 to engage in these activities. In response to these allegations, Ms. James remarked, “Gambling by another name is still gambling,” emphasizing the potential harm that such unregulated platforms pose, particularly to young users.
Coinbase’s chief legal officer, Paul Grewal, defended the company’s practices on social media, asserting that prediction markets are operated as federally regulated national exchanges. He stated that Coinbase will continue to advocate for federal oversight, claiming that this was the framework Congress intended. However, he acknowledged that the legal proceedings currently remain within the New York federal court system. Meanwhile, Gemini has not publicly responded to the lawsuit.
The attorney general’s office is seeking a court order requiring both companies to forfeit what they believe are illegal profits, as well as to provide restitution to affected consumers. Additionally, they are seeking fines estimated to be three times the profits allegedly gained through their unlawful activities.
The legal actions come at a time when many states across the nation are grappling with the intersections of online gambling and cryptocurrency. The rise of crypto has often been touted as a means to bypass regulatory constraints, but it has also given rise to scams and risky practices that leave victims with diminished recourse. Meanwhile, the legalization of online sports gambling and casino games in various states has generated significant tax revenue, prompting a competitive race to capitalize on the market.
Recent years have seen numerous scandals in the realm of sports betting, with insider betting corrupting some leagues, leading to heightened scrutiny and regulatory responses. As a means of tightening control over this sector, states have begun prosecuting leaders in the prediction market space, and companies have countered by arguing that their offerings do not fall under traditional gambling regulations.
In a warning issued by the New York attorney general’s office earlier this year, they cautioned consumers against platforms providing betting opportunities disguised as “event contracts.” These platforms have been found to facilitate betting on a variety of topics, including political events and sports, without adequate regulatory oversight.
According to the most recent lawsuit, Coinbase actively encouraged participation by New Yorkers through enticing promotions, including a $1 million “Bitcoin prize pool” tied to making correct game-day predictions during the Super Bowl. The suit claims that similar betting opportunities were presented by Gemini, including wagers related to the Super Bowl and college basketball games, such as those involving local teams from St. John’s University and the University of Connecticut.
The attorney general’s office argues that these actions violate New York laws prohibiting any betting on events involving New York college teams. They assert that the ultimate aim of both companies is to operate outside the legal and financial consequences of the state’s gambling regulations. Instead of adhering to licensing requirements for mobile sports wagering, where gross revenues are subjected to approximately 51 percent taxation, the companies are allegedly masking their operations under the guise of event contracts and prediction markets.
