New York’s Attorney General Letitia James has filed lawsuits against Coinbase and Gemini, alleging that the companies are offering illegal gambling through their prediction market platforms.
Coinbase and Gemini have recently started offering markets on sports, elections, and award ceremonies.
“Because the outcomes of these events are uncertain and outside the control of the bettor, or hinge on a game of chance, these prediction market platforms fit the legal definition of gambling in New York,” according to James.
However, the companies do not hold the necessary licenses to conduct gambling activities. New York has a limited gambling market, with only nine licensed sportsbooks.
“Gambling by another name is still gambling, and it is not exempt from regulation under our state laws and Constitution,” said James in a press release. “Gemini and Coinbase’s so-called prediction markets are just illegal gambling operations, exposing young people to addictive platforms that lack the necessary guardrails. My office is taking action to protect New Yorkers and stop these platforms from violating the law.”
Prediction Markets Encourage Underage Gambling
In addition to not holding a valid sports betting license, James objects to Gemini and Coinbase allowing users under the legal gambling age to participate in markets. The legal gambling age in New York is 21, but prediction markets allow 18-year-olds to trade on their platforms.
“Exposing young people to online gambling can have damaging effects on their mental and financial wellbeing,” said the complaint. It cites evidence from the National Institutes of Health that early exposure to gambling increases the likelihood of depression, anxiety, mood swings, and financial stress.
James also recently filed a lawsuit against Valve, alleging the gaming company encourages underage gambling through its loot boxes.
The complaints against Coinbase and Gemini also allege that the companies further violate New York law by allowing residents to gamble on college sports involving the state’s teams, which is prohibited.
James Wants Companies to Pay Back Profits
James is objecting that the companies are not contributing tax revenue in the same way as licensed sportsbooks. New York taxes gambling companies at the highest rate in the country, at 51%. This equated to $1.32 billion in tax revenue for the state last year.
As a result of the lost revenue, James wants the courts to force the two companies “to forfeit illegal profits, distribute restitution to consumers who were harmed, and pay fines equal to three times the profits the companies made through their illegal actions.”
Multiple Legal Battles in NY Against Prediction Markets
In addition to the actions against Coinbase and Gemini, the New York State Gaming Commission also sent a cease-and-desist letter to Kalshi last year. The company responded by suing the gambling regulator, who has agreed not to pursue further action while the case is ongoing.
Kalshi and Polymarket have not been named in the lawsuits brought by the Attorney General. Both companies are facing class actions in the state, with users similarly alleging they are running illegal gambling operations.
New York lawmakers have also introduced legislation proposing an explicit prohibition of prediction markets related to sports, political events, death, and war.
