Key facts
- New York's attorney general sued Kalshi on Friday, alleging violations of state gambling laws.
- The lawsuit against Kalshi mirrors previous actions against Coinbase and Gemini.
- New York seeks $3.4 billion in penalties from Coinbase and Gemini.
- The state argues that prediction market platforms constitute illegal gambling operations.
- Key legal arguments include the classification of prediction markets as gambling, a lack of required licenses, and age restrictions.
New York's attorney general filed a lawsuit on Friday against Kalshi, a prediction market operator, alleging that the platform violates state laws against illegal gambling. This action follows similar legal challenges brought against Coinbase and Gemini for operating similar prediction markets without the necessary licenses.
The state is seeking a combined $3.4 billion in penalties from Coinbase and Gemini, arguing that their platforms function as illegal gambling operations. The attorney general's office contends that wagering on uncertain outcomes, regardless of how they are classified by regulators like the CFTC, constitutes gambling under New York law. The state also points to a licensing gap, noting that licensed gambling operators pay significant taxes, a burden avoided by Coinbase and Gemini. Furthermore, the lawsuits highlight that Coinbase and Gemini allow users aged 18 and older, while New York's gambling age is 21, and that these platforms may offer contracts on New York college sports, which is prohibited.
Coinbase and Gemini have characterized their offerings as event contracts traded on CFTC-regulated exchanges, not as wagers. The legal landscape for prediction markets is currently divided, with different federal appeals courts issuing conflicting rulings on whether states have the jurisdiction to regulate them. New York's enforcement action is the largest state-level action in the history of prediction markets.