The lawsuit, filed Thursday by New York Attorney General Letitia James against QCX LLC, which does business as Polymarket US, argues that the company’s prediction contracts meet the state’s legal definition of gambling because users wager money on uncertain outcomes beyond their control.

Polymarket responded with a separate federal lawsuit hours later, arguing that prediction markets fall under the exclusive regulatory authority of the U.S. Commodity Futures Trading Commission rather than state gambling regulators. The two lawsuits place the company and New York on opposite sides of a broader dispute over whether prediction markets should be treated primarily as financial markets or gambling operations.

New York challenges Polymarket’s legal status

New York’s case centers on the way Polymarket structures and markets its contracts.

The state’s Attorney General’s Office says Polymarket launched its U.S. service in December 2025, initially allowing users to wager on sporting events before expanding into markets covering other events. Investigators concluded that the platform was operating an unlicensed gambling operation in New York.

New York argues that the contracts constitute gambling because the outcomes are uncertain and outside the control of the people placing the wagers, or depend on chance.

The state says Polymarket has not obtained a license from the New York State Gaming Commission and therefore does not operate under the licensing, tax and consumer-protection requirements imposed on regulated gambling businesses.

The lawsuit also challenges Polymarket’s age requirements.

According to the state, users between 18 and 20 can access its prediction markets even though New York requires people to be at least 21 to participate in mobile sports betting.

Whether those activities legally constitute gambling under New York law is now a matter for the courts.

Polymarket says federal law controls

Polymarket disputes New York’s authority to regulate its prediction markets as gambling.

The company filed its own lawsuit in Manhattan federal court seeking a declaration that New York cannot enforce its civil and criminal gambling laws against the platform. It argues that the CFTC has exclusive authority over prediction markets and that state intervention conflicts with federal regulation.

Polymarket’s Chief Legal Officer Neal Kumar said the company had attempted to address New York’s concerns before the state filed its lawsuit.

The company’s position is that complying with New York’s demands would put it in conflict with what Polymarket describes as its federally protected ability to operate its markets.

The dispute therefore involves more than whether particular contracts resemble sports wagers. It also raises a jurisdictional question: whether states can apply their gambling laws to prediction markets operating under a federal derivatives framework.

Polymarket already has federal regulatory status

The dispute is complicated by the status of Polymarket’s U.S. operating entity.

The CFTC’s list of designated contract markets identifies QCX LLC, doing business as Polymarket US, as a designated contract market. The agency’s records show the designation date as July 9, 2025.

That federal status does not resolve New York’s lawsuit.

The state argues that its gambling laws still apply to activity occurring within New York, while Polymarket argues that federal regulation preempts the state’s attempt to regulate its prediction markets.

The competing positions will now have to be addressed through litigation.

State and federal approaches are colliding

The Polymarket case is part of a larger legal fight over prediction markets in the United States.

New York has already brought a similar case against Kalshi, another major prediction-market operator. The state has also pursued cases involving prediction-market products offered by Coinbase Financial Markets and Gemini Titan.

The disputes have produced competing claims about the proper regulatory framework.

State authorities argue that contracts allowing people to wager on sports and other uncertain events can fall within state gambling laws.

Prediction-market companies argue that their contracts are derivatives and therefore belong under federal commodities regulation.

Reuters reported that federal appeals courts are divided over aspects of the broader regulatory dispute, raising the possibility that the issue could eventually reach the U.S. Supreme Court.

What New York is asking the court to do

New York is seeking an order preventing Polymarket from operating as an unlicensed gambling business in the state.

The Attorney General’s Office is also asking the court to require the company to forfeit what the state characterizes as illegal gains, provide restitution to affected consumers and pay fines equal to three times those gains.

The state has also argued that regulated gambling generates tax revenue used for public purposes and that unlicensed operators avoid those obligations.

Those are allegations in the state’s lawsuit and have not been established by a final court ruling.

Polymarket is seeking the opposite outcome in its federal case: a ruling that New York cannot apply its gambling laws to the company’s prediction-market operations.

A growing fight over prediction markets

Prediction markets have expanded rapidly in the United States, offering contracts tied to sports, elections, economic indicators, cultural events and other outcomes.

Their growth has blurred a regulatory boundary that traditionally separated financial derivatives from gambling.

For states, the concern is that a contract tied to the outcome of a sporting event can function much like a conventional wager even if it is structured as a financial contract.

For prediction-market operators, the distinction is central to their business model. Their argument is that event contracts belong within the federal derivatives system and should not be subjected to a patchwork of state gambling rules.

The New York litigation will test those competing interpretations in one of the country’s largest markets.

For now, New York has alleged that Polymarket is operating illegally, while Polymarket maintains that federal law prevents the state from regulating its prediction markets in the manner New York seeks.

Neither position has been finally resolved by the courts.

Reporting Credit: New York Attorney General’s Office — lawsuit against QCX LLC d/b/a Polymarket US, allegations concerning unlicensed gambling, requested remedies and investigation findings; U.S. Commodity Futures Trading Commission — designation of QCX LLC d/b/a Polymarket US as a designated contract market; Polymarket — federal lawsuit and response challenging New York’s regulatory authority.

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The law had been scheduled to take effect Saturday and would have made it a crime to create or operate prediction markets or assist in administering most activities connected to them. U.S. District Judge Katherine Menendez ruled Monday that allowing the law to take effect could cause “irreparable harm” to prediction market operators and found that the plaintiffs were likely to succeed in arguing that federal law preempts the state measure.

The lawsuit was filed by prediction market platforms Kalshi and Polymarket, together with the U.S. Commodity Futures Trading Commission (CFTC). The plaintiffs argue that federal law gives the CFTC exclusive authority to regulate event contracts offered on federally regulated exchanges. The injunction will remain in effect while the case moves through the courts.

Legal Dispute Centers on Regulatory Authority

The case centers on whether prediction market contracts are governed by federal commodities law or state gambling laws.

Kalshi, Polymarket and the CFTC argue that event contracts traded on CFTC-regulated exchanges fall exclusively under federal jurisdiction. Minnesota and several other states contend that many of the products offered on those platforms function as sports betting and therefore fall within state regulatory authority.

Minnesota Attorney General Keith Ellison defended the state’s position Tuesday.

“Prediction markets are gambling, plain and simple,” Ellison said in a statement.

“And Minnesota has every right to keep predatory gambling out of our communities.”

Ellison said his office disagrees with the court’s conclusion that maintaining the status quo means allowing prediction market platforms to continue operating but acknowledged the legal issues are complex and said the state will continue defending the law.

Polymarket Chief Legal Officer Neal Kumar welcomed the ruling, saying it reinforces the view that prediction markets operating on CFTC-regulated exchanges are governed by federal law rather than “a patchwork of state rules.”

Kalshi spokesperson Elisabeth Diana similarly said states cannot prohibit activities that fall outside their legal jurisdiction.

Similar Legal Battles Expand Nationwide

The Minnesota case is part of a broader series of legal disputes over the regulation of prediction markets across the United States.

In February, the Trump administration’s leadership at the Commodity Futures Trading Commission announced that the agency would no longer permit states to regulate or prohibit prediction markets in ways it believes interfere with the commission’s exclusive jurisdiction.

According to The Associated Press, the federal government sued Connecticut, Arizona and Illinois in April over state efforts to regulate prediction market operators. During the same month, New York filed lawsuits against Coinbase and Gemini, two companies that have expanded into prediction market offerings.

Industry organizations have also entered the debate. The American Gaming Association estimates that states have lost more than $1.2 billion in tax revenue from wagers since prediction markets began offering sports-related event contracts.

Native American tribal leaders and state gambling regulators have likewise argued that wagering on sporting events, elections and other outcomes through prediction markets constitutes unlawful gambling under state law.

Federal Rulemaking Continues

While the court challenges proceed, the Commodity Futures Trading Commission has begun a rulemaking process to determine which categories of event contracts should be considered “contrary to the public interest” and therefore prohibited from trading on federally regulated prediction market platforms.

The outcome of that process, together with the expanding litigation across multiple states, is expected to play a significant role in shaping the future regulatory framework for prediction markets in the United States.

This report is based on reporting by The Associated Press.

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