Polymarket has filed a counter lawsuit against New York Gov. Kathy Hochul (D) and Attorney General Letitia James, who jointly sued the prediction market for allegedly running an illegal gambling operation.
Based in New York, Polymarket leads the global prediction market industry, although its US-focused platform has a smaller market share. The crypto-based prediction market moved to transfer the lawsuit brought by the state to New York’s federal Southern District Court following the legal complaint. Polymarket also filed a civil complaint against Hochul and James, claiming that the state’s accusations of violating gambling laws could result in “imminent and irreparable harm.”
This action seeks to prevent imminent and irreparable harm arising from New York’s enforcement of state gambling laws against federally regulated derivatives exchanges — enforcement Congress has expressly prohibited,” Polymarket said in its civil suit.
The prediction market is seeking a ruling through a declaratory judgment that New York’s gambling laws are preempted by the Commodity Exchange Act (CEA), which governs its trading platform under the oversight of the Commodity Futures Trading Commission (CFTC).
Allegations by the State
Hochul and James claimed in their lawsuit that Polymarket is in violation of state gambling laws by offering trading on sports events. The lawsuit referenced an investigation by James’ office that determined Polymarket’s prediction market to be an “illegal, unlicensed gambling operation” allowing participation by individuals aged 18 and above.
I will always stand up for New Yorkers when bad corporate actors prey on consumers and threaten tax dollars that fund schools and critical public services,” said Hochul. “By running an unlicensed gambling operation, Polymarket has done more than just knowingly violate state law, they have put New Yorkers at risk, especially those underage who are most vulnerable to problem gaming.”
James stated that Polymarket’s prediction market fits the legal definition of gambling because the outcomes of its event markets are based on chance.
“Our gambling laws exist to protect New Yorkers, prevent the potential harms of problem gambling, and ensure funding for educational and public benefit programs,” said Attorney General James. “By skirting New York’s laws, Polymarket is targeting the most vulnerable and depriving New York families of critical services and support. My office will never hesitate to take action to defend our laws and keep New Yorkers safe.”
Polymarket Asserts Federal Supremacy
In its countersuit, Polymarket claimed that its operations are conducted transparently under federal law. The platform refuted Hochul and James’ claims that its sports contracts constitute illegal sports betting by highlighting that, unlike a sportsbook, it does not establish a market’s prices.
“Sportsbooks set odds based on proprietary information; event contracts are priced by supply and demand in a relevant market,” Polymarket attorneys wrote. “Sports bettors typically place wagers against the ‘house,’ so sports bettors and sportsbooks are counterparties to the gambling transaction.”
But Polymarket US does not operate as a counterparty in the derivatives market. Instead, it operates as a transparent, centralized exchange matching orders of third parties,” the complaint read.
“Polymarket US makes money by charging a flat fee for each transaction; unlike a sportsbook, it does not make money when a bettor loses, and it makes the same amount regardless of the outcome of a particular event,” the lawsuit said.