New York accuses crypto sites Coinbase, Gemini of illegal gambling

MANHATTAN (CN) — Prediction markets are “still gambling,” according to New York Attorney General Letitia James, who launched a pair of illegal gambling lawsuits on Tuesday against cryptocurrency exchanges Coinbaseand Gemini.

In the complaints filed in state court in Manhattan, James accuses the platforms of running unlicensed gambling operations through prediction markets, where people can make prediction-based trades on the outcome of real-world events like sports and elections.

“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.”

James notes in the suits that, on both platforms, people can trade on precisely the same outcomes that exist on traditional betting sites, like whether or not the New York Knicks would win a game and the outcome of the Super Bowl. On some contests, the platforms sometimes even offer point spreads, a staple of sports betting, in which people place wagers based on the point difference between competing teams, she claims.

Even so, James accuses the companies of trying to distance themselves from gambling “to avoid the legal and financial consequences” of state wagering regulation.

Prediction markets, which have exploded in popularity in recent years with the success of those like Kalshi and Polymarket, tend to blur the line between stock market and sportsbook by allowing people to purchase “shares” of an outcome, priced by its likelihood, that can be sold for a profit or a loss as the markets move.

The format has allowed some of these markets to operate in a legal gray area as legislators and courts look to catch up with the developing trend.

Elected officials have chastised some platforms for offering wagers on substantial geopolitical events like wars and elections, particularly as concerns swell over insider trading. Meanwhile, Kalshi and Polymarket are both facing federal lawsuits on claims they serve as unregulated sports betting platforms.

In the cases of Coinbase and Gemini, James claims they’re no different than any other online casino or sportsbook — except for the fact that they’re unregulated and untaxed by the state.

Additionally, James notes that a person must be at least 21 years old to participate in mobile sports betting in New York. But Coinbase and Gemini allow users over the age of 18 to use their prediction markets.

“What respondent offers through its platform is quintessentially gambling: it allows a bettor to stake or risk a thing of value upon the outcome of a contest of chance or a future contingent event not under the bettor’s control or influence, upon an agreement or understanding that he will receive something of value in the event of a certain outcome,” James argues in the suits.

Coinbase disagrees.

“Prediction markets are federally regulated national exchanges, registered with the [Commodity Futures Trading Commission],” Paul Grewal, Coinbase’s chief legal officer, said in a statement to Courthouse News. “This issue is proceeding in New York federal court as we speak. Coinbase will continue to fight for the federal oversight of these markets that Congress intended.”

A representative for Gemini didn’t immediately respond to a request for comment.

James is looking to force the companies to forfeit profits, distribute restitution to consumers who participated and pay fines equal to three times the profits the companies made through the scrutinized actions.

In addition to the broader claims of unregulated gambling, James argues that Coinbase and Gemini violated a state-specific law that bars people in the state from wagering on college sports teams inside New York.

The pair of lawsuits are the latest in a series of actions targeting gambling operations in New York. Earlier this year, James sued PC game developer Valve for its “loot boxes” in games like Counter-Strike and Dota, which she claims gets kids hooked on gambling with slot-like unboxings of items with real-world value.

Last summer, James stopped more than two dozen online sweepstakes casinos after sending cease and desist letters to each on account of prohibited gambling activity.

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