New York Sues Crypto Giants Coinbase and Gemini in $3.4 Billion Prediction Market Crackdown

The latest state to take on the rapidly expanding prediction market sector is New York, which is pursuing billions in a fresh legal offensive. According to data reported by Forbes, Attorney General Letitia James sued Coinbase ($1.2 billion) and Gemini ($2.2 billion) on Tuesday for allegedly running illicit gambling platforms.

The platforms' event contracts are allegedly in violation of state laws against unlawful gambling, according to the lawsuit filed in the state supreme court. Along with civil fines of up to three times those sums and customer restitution, it aims to collect allegedly illicit gains.

Following the announcement, Coinbase shares fell by almost 7%. The lawsuit does not identify Robinhood (HOOD), which had a decline of more than 5%.

"At Risk"

According to James, an AG's office examination into the two businesses revealed that their services "constitute illegal, unlicensed gambling operations" that "expose New Yorkers – including those under the legal gambling age of 21 – to serious financial and personal risk."

"Gambling by another name is still gambling, and it is not exempt from regulation under our state laws and Constitution,” James said in a statement. “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Prediction markets contend that state gambling laws are superseded by federal commodities law and that the contracts they offer are financial derivatives that are governed by the Commodity Futures Trading Commission (CFTC).

“Prediction markets are federally regulated national exchanges, registered with the CFTC … Coinbase will continue to fight for the federal oversight of these markets that Congress intended,” wrote Coinbase’s chief legal officer Paul Grewal on X Tuesday, adding that the complaint had filed a notice to remove the case to federal court.

Kalshi, why not?

Kalshi and Polymarket are conspicuously omitted from the case. After receiving a cease-and-desist letter, Kalshi filed a lawsuit against the New York Gaming Commission last year, claiming that the regulator's attempt to shut it down was illegal under federal law. The case is still pending.

James' action is probably an early test case in a legal battle that may eventually make it to the US Supreme Court, along with an increasing number of state-level challenges around the country.

Forecast markets saw over $44 billion in total trading volume in 2025—four times more than the year before—and are projected to reach over $325 billion in 2026.