New York Files Lawsuit Against Polymarket; Prediction Market Operator Files Countersuit
New York Attorney General Letitia James sued Polymarket on Thursday, accusing the company's U.S. operation of running an illegal, unlicensed gambling business in the state.
The lawsuit targets QCX LLC, doing business as Polymarket US, arguing that its event contracts fall under New York's definition of gambling because they involve uncertain outcomes outside a bettor's control or outcomes determined by chance. The state says Polymarket therefore needs a license from the New York State Gaming Commission to operate in the New York sports betting space.
Polymarket wasn't exactly going to sit back and see how that played out. Hours later, the company filed a separate federal lawsuit against James and officials from the New York State Gaming Commission, arguing that federal law prevents the state from regulating its event contracts.
That puts the dispute squarely into the broader fight over who gets to regulate prediction markets: state gambling regulators or the federal government.
New York's vs. Polymarket
The state's argument is relatively straightforward. New York says Polymarket is offering gambling products without a state gambling license. The AG's office says the company's sports contracts meet the state's legal definition of gambling because bettors wager on uncertain events they cannot control. The state also argues that Polymarket is avoiding the tax structure imposed on New York sports betting apps.
That's potentially significant in New York, where mobile sports wagering revenue is taxed at 51% of gross gaming revenue. That rate is among the highest in the country and is tied with Rhode Island and New Hampshire for the national high.
New York is also making this a consumer-protection case. The AG alleges that Polymarket's platform is available to users aged 18 to 20, even though New York law requires customers to be at least 21 to participate in mobile sports betting. The state says allowing younger users to access these markets violates its gambling laws and exposes them to risks that its licensing system is designed to address.
James is asking the court to permanently stop Polymarket from operating as an unlicensed gambling business in New York. The state also wants Polymarket to forfeit its alleged illegal gains, provide restitution to affected customers and pay a civil penalty equal to three times the company's gains from the alleged violations.
The lawsuit also seeks $100,000 for each offer or attempt to offer sports wagering or mobile sports wagering in New York.
The Polymarket countersuit
Polymarket's argument starts from a completely different legal framework. It argues that its event contracts are federally regulated derivatives and that New York cannot use its gambling laws to impose a separate state regulatory regime on those contracts.
That's the central legal question here: New York says the contracts constitute gambling under state law. Polymarket says federal commodities law governs prediction market apps and preempts the state's attempt to regulate them as gambling.
Polymarket Chief Legal Officer Neal Kumar was blunt in his response to the lawsuit, calling the state's case a “copy/paste” of what he described as recycled arguments used against other prediction-market operators.
“We will fight for our users,” Kumar said.
He also said Polymarket believes in New York and intends to remain there. The company says it has more than 350 employees in the state and that it had been engaging with state officials before Thursday's lawsuit. Kumar also left the door open to continued discussions with the attorney general's office over consumer protection and market practices.
A nationwide battle
Missouri Attorney General Catherine Hanaway issued formal cease-and-desist notices on Sept. 16 and Sept. 17 to six of the biggest prediction market apps: Kalshi, Polymarket, Robinhood, Underdog, Novig, and Crypto.com. The notices argue that sports event contracts traded on the platforms fall squarely within Missouri’s legal definition of sports betting.
In New Jersey, after the Third Circuit ruled that federal law preempted state regulations, the state took the dispute to the U.S. Supreme Court. The move came after the Ninth Circuit reached the opposite conclusion in a separate Kalshi case, creating a direct circuit split over whether states can regulate sports event contracts offered on federally regulated prediction markets.
In Michigan, Polymarket rival Kalshi has been barred from offering sports-related event contracts to residents after state regulators won a series of court orders against the company. Ingham County Circuit Court Judge Rosemarie Aquilina initially issued a temporary restraining order on June 29, requiring Kalshi to block Michigan users from accessing the contracts.
