What just happened? Less than two months after filing a lawsuit against prediction market platform Kalshi for allegedly running illegal gambling operations in the state, New York has sued Kalshi's rival, Polymarket, over similar allegations. The lawsuit claims that Polymarket does not have a valid license to operate in New York and does not pay state taxes, unlike licensed casinos and mobile sports betting platforms.

The lawsuit, filed in the New York Supreme Court in Manhattan by Attorney General Letitia James and Governor Kathy Hochul under Executive Law 63(12), noted that Polymarket's products are also being marketed to New Yorkers between the ages of 18 and 20, even though state law requires a person to be at least 21 to participate in mobile sports betting.

New York is asking the court to impose financial penalties on Polymarket for exposing New Yorkers to "serious personal and financial risk," proposing that the fines should be "equal to three times the gains the company made through its illegal actions." The state also wants the company to forfeit its allegedly illegal profits and pay restitution to people who lost money on the platform.

In a statement, Governor Hochul said Polymarket's "unlicensed gambling operation" not only violates state law, but also puts New Yorkers at risk, especially underage users, who are most vulnerable to gambling addiction. She added that the lawsuit should serve as a reminder that nobody is above the law in New York, and that companies operating illegally will be held accountable for their actions.

Echoing Governor Hochul's sentiments, Attorney General James said New York's gambling regulations are designed to protect its residents from "potential harms of problem gambling" and ensure funding for educational and public benefit programs. She added that "by avoiding taxes, Polymarket is hurting the most vulnerable New Yorkers and depriving them of critical services and support."

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Polymarket denies violating any New York law, arguing that its presence in the state is good for the local economy. In a statement, the company's chief legal officer, Neal Kumar, vowed to fight the lawsuit in court, noting that Polymarket started out of a "tiny NYC apartment" and now has 350 employees in the city. "We believe in New York and we're staying here," he added.

Polymarket previously opposed being classified as a gambling platform, insisting that its products are legally distinct from traditional sports betting as it provides odds based on "measurable events." It also claimed that it is offering financial services and should not therefore be subject to gambling regulations.

James has sued other gaming and crypto platforms in the past for allegedly violating state laws. In July, she sued Kalshi, accusing it of running an illegal and unlicensed gambling operation. In 2023, her office secured more than $22 million from crypto exchange KuCoin for operating illegally, while in 2024, she settled with crypto brokerage firm Genesis for $2 billion over similar allegations.

A relatively new addition to the online gaming space, prediction markets currently lie in a legal gray area in the US, with no consensus on how they should be regulated and taxed. US courts have previously disagreed on the classification of prediction markets, issuing conflicting verdicts on who gets to regulate their operations.

In April, a federal appeals court in New Jersey ruled that the state could not regulate Kalshi because its business falls under the purview of federal regulators. But in a seemingly contradictory verdict in August, a federal appeals court in Nevada allowed the state to apply its own gambling regulations to Kalshi's sports contracts.