NY Attorney General Targets Prediction Markets in Lawsuits Against Coinbase, Gemini

New York Attorney General Letitia James announced this week that her office has filed lawsuits against Coinbase and Gemini, two of the industry’s most prominent exchanges, alleging that their prediction market offerings constitute “illegal gambling operations”.

The legal action represents a significant escalation in the oversight of decentralized platforms. While Coinbase and Gemini have framed these products as innovative financial tools for hedging risk and forecasting outcomes, some state regulators are characterizing them as unlicensed casinos.

“Gambling by Another Name”

At the heart of the litigation is the Attorney General’s assertion that the platforms have skirted critical state regulations. By allowing users to trade contracts on a spectrum of future events — ranging from sports and entertainment outcomes to election results — the platforms are, according to the state, engaging in activities that require specific gaming licenses.

Attorney General James was blunt in the official press release from her office:

“Gambling by another name is still gambling, and it is not exempt from regulation under our state laws and Constitution. 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.”

The state’s case hinges on the argument that these prediction markets function as games of chance rather than traditional financial investments, placing them squarely under the purview of the New York State Gaming Commission.

By failing to secure the necessary licensure, the AG argues that the companies have avoided tax obligations intended to fund public education and problem gambling treatment programs.

Protecting the Demographic: The Age Question

A central pillar of the lawsuit focuses on user access and consumer protection. Currently, New York law mandates that participants in mobile sports betting must be at least 21 years old. The Attorney General’s office contends that Coinbase and Gemini opened these prediction markets to users as young as 18, exposing a younger demographic to the financial and psychological risks associated with habitual gambling.

The filing highlights concerns regarding the early introduction of gambling behaviors, citing potential correlations with increased risks of depression, anxiety, and financial stress among younger users. This focus on “guardrails” suggests that regulators are particularly concerned with how easily accessible digital interfaces might bypass traditional age-verification hurdles common in land-based casinos.

“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 said.

Allegations of Improper Betting on NY College Teams

The scope of the Attorney General’s lawsuit extends beyond age-verification and licensing concerns. The filings further allege that Coinbase and Gemini have violated specific New York laws that explicitly forbid betting on games in which New York college teams participate.

As the state moves to litigate these claims, the Attorney General is seeking rigorous financial penalties from both companies. In her filings, James is asking the court to require Coinbase and Gemini to:

• Forfeit all illegal profits generated through these prediction markets.

• Distribute restitution to the consumers who were harmed by the platforms’ operations.

• Pay fines equal to three times the total profits the companies accrued through their allegedly illegal actions.

This legal action signals a deepening divide between the rapidly evolving crypto market and the rigid regulatory framework of the Empire State, potentially setting a precedent for how prediction markets will be handled by state authorities moving forward.