Published on: April 22, 2026, 08:03h.

Updated on: April 22, 2026, 08:03h.

• New York Files Lawsuit Against Coinbase and Gemini for Alleged Illegal Prediction Markets
  
• State Claims Billions, Accusing Platforms of Operating as Unauthorized Gambling Services
  
• Crypto Companies Assert Contracts Are Federally Regulated Derivatives, Not Gambling

New York is stepping up its legal enforcement against the burgeoning prediction market sector, targeting significant financial compensation. On Tuesday, Attorney General Letitia James initiated legal action against Coinbase Financial Markets (COIN.O) and Gemini Titan, seeking $1.2 billion and $2.2 billion, respectively, as reported by Forbes.

The lawsuit, filed in the state supreme court, contends that these platforms’ event contracts breach state laws regulating illegal gambling. The state is pursuing the recovery of alleged unauthorized profits, alongside civil penalties that could triple these amounts, as well as restitution for affected customers.

Following the news, Coinbase’s stock dropped by over 7%, while Robinhood (HOOD), which is not implicated in the lawsuit, saw a decline exceeding 5%.

‘Exposed to Danger’

James stated that an investigation from her office revealed that the services offered by both companies amount to illegal, unlicensed gambling operations, posing serious financial and personal risks to New Yorkers, including minors below the legal gambling age of 21.

“Gambling by another name remains gambling, and it is not exempt from regulation as per our state laws and Constitution,” James declared in a statement. “The so-called prediction markets from Gemini and Coinbase are merely illegal gambling operations, endangering young people with addictive platforms that lack essential protective measures. My office is committed to safeguarding New Yorkers and preventing these platforms from breaching the law.”

Prediction markets defend their operations by asserting that the contracts they provide are financial derivatives, thus falling under the jurisdiction of the Commodity Futures Trading Commission (CFTC). They argue that federal commodities law supersedes state gambling regulations.

“Prediction markets are nationally regulated exchanges recognized by the CFTC … Coinbase will persist in advocating for the federal oversight these markets deserve, as intended by Congress,” stated Coinbase’s Chief Legal Officer, Paul Grewal, on X this Tuesday, also mentioning that they are seeking to transfer the case to federal court.

Where’s Kalshi?

Interestingly, Kalshi and Polymarket are not part of the lawsuit. Last year, Kalshi initiated legal proceedings against the New York Gaming Commission after receiving a cease-and-desist notice. They claimed that this action violated federal law. This case is still in process.

The lawsuit from James, in conjunction with a rising number of state-level legal actions across the United States, could serve as a pivotal test case in what might become a legal battle reaching the US Supreme Court.

In 2025, prediction markets recorded an impressive trading volume of over $44 billion, quadrupling that of the previous year, with projections indicating that this figure will exceed $325 billion in 2026.