New York has opened a second front in its war on prediction markets. Attorney General Letitia James and Governor Kathy Hochul filed suit against Polymarket on September 24, accusing the platform of running an unlicensed gambling operation and asking a court to bar it from operating in the state.
The complaint alleges Polymarket exposes New York residents to gambling harms without the regulatory safeguards required under state law. The action doesn’t target the technology or the CFTC settlement that already bars U.S. users, it attacks the business model itself, framing event contracts as illegal wagers rather than regulated derivatives or protected speech.
Second Lawsuit in Three Months
This isn’t a one-off. New York sued Kalshi in July on near-identical grounds, alleging that platform also operated an illegal gambling business. Both cases hinge on the same legal theory: prediction markets, regardless of their structure or regulatory history, constitute gambling under New York law when they allow residents to speculate on future events.
Polymarket settled with the CFTC in 2022, paid a $1.4 million fine, and agreed to block U.S. users. The platform has operated since then with a geofence in place, ostensibly keeping New Yorkers out. The state’s lawsuit suggests either the geofence leaks or New York doesn’t care, the mere availability of the service to anyone in the jurisdiction is enough to trigger enforcement.
Prediction Markets vs. Gambling Statutes
The distinction between a prediction market and a gambling platform has always been a lawyer’s playground. Polymarket lets users buy and sell shares in event outcomes, settling contracts at $1 or $0 depending on whether the event occurs. The CFTC called that an unregistered derivatives exchange. New York is calling it a casino without a license.
If the court grants the injunction, Polymarket faces a choice: exit New York entirely or fight a protracted legal battle over the definition of gambling in a state that hasn’t updated its statutes for the internet age. Kalshi is already in that fight. The difference is Kalshi operates onshore with a CFTC no-action letter. Polymarket runs on Polygon, settles in USDC, and has no U.S. regulatory sponsor.
New York’s double lawsuit strategy signals a broader crackdown on prediction markets, not just platforms operating in regulatory gray zones. The state isn’t interested in whether the CFTC blessed the model or whether users are hedging risk or speculating. It’s drawing a bright line: if New Yorkers can bet on outcomes, it’s gambling, and it needs a license the state has no intention of issuing.
