By Jonathan Stempel
NEW YORK, Sept 24 (Reuters) - New York's attorney general and Polymarket sued each other on Thursday, escalating a nationwide debate over who should regulate prediction markets 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 this year against Kalshi, Coinbase Financial Markets and Gemini Titan.
All were
accused of operating without required New York State Gaming Commission gaming licenses, 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 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.
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 last December following a green light three months earlier from the CFTC.
Polymarket also gained an investment last year 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 $20 billion.
'QUINTESSENTIALLY GAMBLING'
James views prediction markets as "quintessentially gambling" because they let people wager on events whose outcomes they don't 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 July 24, 2026 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.
(Reporting by Jonathan Stempel in New York; Editing by Bill Berkrot and Christopher Cushing)
