The New York Attorney General and Polymarket have sued each other over whether prediction markets constitute illegal gambling.
The Office of the New York Attorney General filed a lawsuit against Polymarket in a New York state court, alleging that the company operates an unlicensed gambling business. Several hours later, Polymarket filed its own lawsuit in federal court, arguing that the Commodity Futures Trading Commission (CFTC) has exclusive authority to regulate prediction markets. The parallel filings intensify a nationwide dispute over who should oversee the sector and whether its products breach state gambling laws, according to Reuters.
New York's allegations
The state's case expands an enforcement effort that already includes actions filed earlier in 2026 against Kalshi, Coinbase Financial Markets, and Gemini Titan. As in those cases, Polymarket is accused of operating without the licences required by the New York State Gaming Commission, encouraging problem gambling, particularly among people under 21, and endangering users' financial, emotional, and physical health.
The Attorney General describes prediction markets as 'quintessentially gambling', since users wager on events whose outcomes they do not control and expect payouts if they win. The complaint cites recent Polymarket contracts, including one on whether the Los Angeles Dodgers would defeat the New York Mets by more than 1.5 runs on 24 July 2026. The state also objects to Polymarket allowing users aged 18 to 20 onto its platform, although New York law sets a minimum age of 21 for mobile sports betting.
New York is seeking civil fines, forfeiture of illegal gains, and full restitution to customers. In a statement, the state's governor said Polymarket had knowingly violated state law and put residents at risk, particularly underage users.
Polymarket's federal challenge
Polymarket's lawsuit asks the court to declare that New York cannot enforce its civil and criminal gambling laws against the company. It argues that the state has created an 'impossible choice': comply with state regulators and undermine its federal right to operate nationwide, or continue operating and face potentially significant criminal liability. The company says this amounts to irreparable harm and describes the state's action as an assertion of power foreclosed by federal law.
Chief Legal Officer Neal Kumar said Polymarket had tried to resolve its differences with state officials, but that they had preferred media attention.
Regulatory and market context
The case is the latest attempt by US states to restrict an industry whose popularity grew after prediction markets outperformed pollsters in forecasting the outcome of the 2024 US presidential election. These states are also at odds with the Trump administration and the CFTC. Federal appeals courts are divided on the question of oversight, which raises the possibility that the US Supreme Court may ultimately need to rule on whether federal commodities regulation takes precedence over state gambling laws.
For prediction market operators, the outcome of the two proceedings could clarify whether CFTC authorisation is enough to operate across all US states, or whether state gaming licences are also required.
