New York Attorney General Sues Coinbase, Gemini for Illegal Gambling

^{Attorney General Letitia James is the latest state regulator to challenge prediction markets, arguing New York gambling law applies regardless of how the platforms classify their products. (Photo: UPI / Alamy Live News)}

New York Attorney General Letitia James filed a lawsuit against cryptocurrency exchange platforms Coinbase and Gemini on Tuesday, April 21, alleging that both were running illegal gambling operations in the state through their prediction market products.

According to James, the Office of the Attorney General found that both sites allow bets on sports, entertainment, and elections that violate New York law.

James: Prediction Markets are ‘Gambling by Another Name’

In a press release, James also pointed to the fact that the prediction markets allow New Yorkers under the state’s legal gambling age of 21 to purchase event contracts. The lawsuit seeks fines, customer restitution, and the forfeiture of illegal profits from both Coinbase and Gemini.

James says that prediction markets are "still gambling" and are not exempt from New York's 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,” James wrote. “My office is taking action to protect New Yorkers and stop these platforms from violating the law.”

In her statement, James argues that the ability to stake money on uncertain future events beyond the bettor's control means that the contracts offered on prediction market platforms fit New York's legal definition of gambling in the state of New York. She also notes that neither site has a license from the New York State Gaming Commission,  which is a threshold requirement for any gambling operation in the state.

The lawsuit also alleges narrower violations of New York gambling laws, including that both sites allow betting on games involving New York college teams, which is prohibited even at licensed sportsbooks in the state. 

Tension Grows Between State and Federal Oversight

Because Coinbase and Gemini are both open to users ages 18 and up, James also framed the lawsuit as an attempt to protect younger New Yorkers from exposure to the gaming industry.

“Exposing young people to online gambling can have damaging effects on their mental and financial well-being,” the lawsuit announcement states. “A recent study by the National Institutes of Health found that early exposure to gambling increases the likelihood of depression, anxiety, mood swings, and financial stress.”

The lawsuit is the latest in a long line of legal battles between state regulators and prediction markets in the United States. 

States say these sites are violating their gambling regulations and operating without licenses. But the prediction markets maintain that only the Commodity Futures Trading Commission has the right to regulate their products, which they argue are swaps and fundamentally different from what sportsbooks offer.

“Prediction markets are federally regulated national exchanges,” Coinbase Chief Legal Officer Paul Grewal said on social media. “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.”

But whether Congress wanted that CFTC oversight to extend to sports is an open question. Members from both sides of the aisle seemed skeptical of that claim during a House committee hearing last week, while a Senate bill introduced last month would classify sports event contracts as gambling under federal law.