New York State sues Coinbase and Gemini: Alleging prediction market products involve "illegal gambling operations"

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New York State officially filed a lawsuit against Coinbase and Gemini on Tuesday, alleging that the prediction market contracts offered by these two cryptocurrency exchanges—covering sports events, entertainment, and elections—violate the state's gambling laws. This makes New York the latest state government to take legal action against prediction market providers, following states like Nevada and Washington. According to the complaint, the prediction market products offered by Coinbase and Gemini are effectively "unlicensed gambling products." The filing not only highlights how these companies promote their prediction markets but also asserts that they essentially act as "bookmakers" on their platforms. The New York Attorney General's office further described the operations of these platforms, explicitly defining users as "gamblers" and asserting that "every contract is a bet." The complaint also noted that while New York law explicitly prohibits individuals under 21 from using mobile apps to gamble, these two platforms have allowed young people aged 18 to 21 to place bets easily. New York Attorney General Letitia James stated that the products offered by Gemini and Coinbase constitute "illegal gambling activity," adding: "Gambling by any other name is still gambling, and it cannot be exempted from the oversight of our state laws and constitution." The complaint against Coinbase states: "As previously mentioned, the services provided by the defendant platforms are inherently gambling: allowing gamblers to wager money on contests based on luck, or on the outcomes of future events over which they have no control or influence; the tacit understanding is that if a specific result occurs, the gambler receives a return of value." In fact, New York is not the first to take such action. Recently, several state governments, including Nevada and Washington, have filed lawsuits against operators providing sports and entertainment prediction products. The position of these state governments is quite clear: at least regarding bets related to sports events, this is pure "gambling," rather than "swaps" regulated by the federal government. This battle over definition is currently escalating through layers of appeals in local courts and is very likely to reach the U.S. Supreme Court. Facing the aggressive lawsuit from New York, Coinbase Chief Legal Officer Paul Grewal hit back hard on the social media platform X, emphasizing that "prediction markets are national exchanges regulated by the federal government" and stating that the company will firmly defend its position of being regulated by the federal government. On the other hand, a spokesperson for Gemini declined to comment. Amid the tug-of-war between federal and local regulatory authority, CFTC Chairman Mike Selig has expressed support for the industry. He argues that prediction markets, including those involving sports event contracts, should fall entirely under the "exclusive jurisdiction" of the CFTC. To this end, the CFTC has even filed lawsuits against states like Arizona, Connecticut, and Illinois, attempting to prevent local governments from taking enforcement actions against prediction market operators; meanwhile, the CFTC has also intervened in another lawsuit in Nevada to back the industry. It is worth noting that the major prediction market platform Kalshi was not named as a defendant in Tuesday's lawsuit. The reason is that the company had already "preemptively" filed a lawsuit against the New York State Gaming Commission last autumn, requesting a federal court to rule that New York's gambling laws do not apply to the platform. This case is currently pending in the U.S. District Court for the Southern District of New York.

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