New York Sues Polymarket Over Illegal Gambling Operation

New York Attorney General Letitia James has sued prediction market platform Polymarket, accusing the company of operating an unlicensed illegal gambling business. The lawsuit seeks to bar the service from accepting bets from state residents and demands a fine equal to three times its profits. Governor Kathy Hochul publicly backed the move.

What the lawsuit alleges

The suit targets QCX LLC, which does business as Polymarket US. According to the attorney general's office, the platform lets users wager on uncertain outcomes beyond their control, meeting New York's legal definition of gambling.

Polymarket launched in the US market in December 2025. Beyond sports, the service lets people bet on election outcomes, crypto prices and nearly any public event, since the company's own pitch offers markets on "everything." Through parent company QCX LLC, Polymarket returned to the US market in late 2025 after gaining status as a CFTC-licensed derivatives exchange, which let it accept bets from Americans again.

The investigation found the platform operates without a state license and skips the taxes that regulated casinos and mobile sportsbooks pay. Investigators say the company deliberately built its business model to sidestep those obligations.

"By skirting New York's laws, Polymarket is targeting the most vulnerable and depriving New York families of critical services and support."

- Letitia James, New York Attorney General, from an official statement by the attorney general's office

Parties and demands

Users fund their Polymarket accounts with the stablecoin USDC, so any court order blocking the service in New York would affect these deposits too. Prosecutors are asking the court to bar QCX LLC from operating in the state, force the company to forfeit its gains, and pay restitution to users who already placed bets.

The suit separately seeks a fine equal to three times the earnings from the conduct prosecutors call illegal. Officials say Polymarket avoided licensing and taxation for years, unlike legal gambling operators in the state. The company has not yet issued an official comment on the allegations.

Pressure builds across prediction markets

The Polymarket suit extends a campaign James and Hochul already started. In July they filed a similar suit against rival Kalshi, seeking $36 billion over the same "illegal gambling" claim. In April the state also sued Coinbase and Gemini over their prediction market products.

A wave of similar actions has spread to other states:

• Kentucky opened its own investigation into prediction market operators
• Illinois raised gambling licensing claims
• Several other states are weighing similar suits against Kalshi and Polymarket

The platforms insist they operate as federally regulated venues under CFTC oversight rather than state jurisdiction. Unlike centralized crypto exchanges, which hold licenses at both state and federal levels, Polymarket and Kalshi base their defense solely on federal status. The Trump administration backs the industry's position in this fight with state regulators. Both companies raised billions in fresh funding over the past year and now carry multi-billion-dollar valuations despite the mounting regulatory pressure.

Pressure is also building in Congress. Every Democrat on the Senate Banking Committee has publicly urged its chair, Sen. Tim Scott, to hold a hearing on prediction markets. Republicans, at the same time, favor private meetings with Kalshi over public debate.

How the prediction market sector is reacting

Pressure is mounting even from the federal regulator. The CFTC recently warned that so-called "mention" contracts, bets on whether specific words or events occur, carry a heightened risk of manipulation. Bernstein analysts have projected prediction market trading volumes could reach $1 trillion in the coming years, despite growing regulatory pressure from multiple directions.

If the New York court sides with prosecutors, state users would have to withdraw their funds from the platform, and Polymarket would lose one of the largest US markets. For Polymarket and Kalshi, the outcome of the New York cases will set a precedent for other states weighing federal versus state-level oversight of the sector. The coming months of litigation will show whether prosecutors can make their case stick in court.