New York State has initiated legal action against two prominent cryptocurrency platforms, Coinbase and Gemini, asserting that their prediction market operations violate state gambling laws. Attorney General Letitia James filed the lawsuit in Manhattan on Tuesday, contending that these platforms, operating without the necessary licenses, are essentially conducting illegal gambling activities.
In her statement, James emphasized the need for regulation, stating, “Gambling by another name is still gambling, and it is not exempt from regulation under our state laws and Constitution.” She expressed concern about the potential for these platforms to expose young people to addictive gambling environments devoid of appropriate safeguards.
The lawsuit aims to prevent Coinbase and Gemini from continuing their prediction market services in New York until they secure licensing from the state Gaming Commission. This action comes in the wake of both companies’ expansions beyond their original cryptocurrency trading business into the realm of prediction markets—a sector already occupied by competitors such as Kalshi and Polymarket.
Gemini, created by brothers Cameron and Tyler Winklevoss, introduced its prediction service, Gemini Predictions, in December 2022, while Coinbase followed suit with its own prediction market service in January 2023. The websites of these companies present users with various betting opportunities, ranging from the outcomes of Premier League soccer matches to the anticipated actions of government officials.
The complaint filed by the state alleges that the two companies are attempting to evade the rigorous legal and financial scrutiny associated with regulated gambling by masquerading their operations as “event contracts” within a “prediction market.” Due to their unregulated status, Coinbase and Gemini are not obligated to pay the same taxes imposed on licensed gaming facilities, which amount to about 51% of gross revenues.
Furthermore, the lawsuit points out that these platforms permit users as young as 18 to engage in wagering, contrary to state law that prohibits anyone under 21 from gambling.
The prediction market landscape has seen legal challenges from various parties, including Kalshi, which is embroiled in an ongoing lawsuit against the state Gaming Commission after the latter sought to restrict its operations. Kalshi asserts that, as a federally recognized derivatives exchange, it falls under the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC).
Coinbase echoed this argument last December when it filed lawsuits in multiple states, including Connecticut, Michigan, and Illinois, to thwart regulatory attempts against its prediction offerings. Recently, the CFTC also pursued legal action against those states to prevent them from enforcing regulations on prediction markets.
In another noteworthy development, a federal judge recently halted Arizona’s regulatory initiatives concerning prediction markets, suggesting that the CFTC may have a strong case for preemption over state law.
In February, James had issued a consumer alert warning regarding the risks associated with unregulated prediction markets, stating that they pose significant financial threats to New Yorkers. Some users have reportedly suffered losses on these platforms and have begun filing lawsuits against the companies.
Interestingly, James herself became a subject of prediction market speculation last year, with Polymarket facilitating trades regarding whether she would face criminal charges by the end of 2022. Although she was indicted later that year, the case was dismissed, with a judge ruling that the indictment was improperly initiated.
In the realm of electoral forecasting, Kalshi has attracted trades concerning the New York attorney general race, with a high percentage of users predicting James will secure a third term.
