New York and Polymarket headed to court over prediction market

New York and Polymarket are headed for a legal showdown, with the state suing the platform for running an "unlicensed gambling" scheme and the multi-billion dollar company firing back with its own legal challenge.

In the 33-page complaint filed in the state's superior court Thursday, New York Attorney General Letitia James alleged that the company, which is valued is valued at more than $20 billion, is seeking to "avoid the legal and financial consequences of New York’s close regulation of gambling by offering what is quintessentially wagering under the guise of “event contracts” on a “prediction market."

The suit claims Polymarket is "subverting New York’s express regime by facilitating gambling in New York without required responsible gambling features mandated for licensed sports wagering operations, and without any oversight by the New York State Gaming Commission, exposing New Yorkers to gambling addiction with few, if any, safeguards."

"Ultimately, it is these types of harms that the New York Constitution and gambling laws were intended to prevent in New York," James wrote in the lawsuit. "Respondent is nonetheless

In a statement, James claimed that by "skirting New York’s laws, Polymarket is targeting the most vulnerable and depriving New York families of critical services and support."

"Our gambling laws exist to protect New Yorkers, prevent the potential harms of problem gambling, and ensure funding for educational and public benefit programs," she said.

But late Thursday, Polymarket responded by filing a request to move the lawsuit from state to federal court and, separately, filed its own civil lawsuit against New York, naming James and officials of the New York State Gaming Commission.

“This action seeks to prevent imminent and irreparable harm arising from New York’s enforcement of state gambling laws against federally regulated derivatives exchanges — enforcement Congress has expressly prohibited,” Polymarket said in the complaint. "Defendants have asserted that federally regulated event-contract trading is ‘unregulated gambling ... which is erroneous theory."

Polymarket launched its U.S. platform last year and is regulated by the Commodity Futures Trading Commission, a federal agency. The company also operates an offshore predictions platform, according to its website.

The lawsuit comes two months after New York sued Kalshi, another prediction market platform, alleging that it failed to get a license from the state Gaming Commission and pay related state taxes.

In a statement, Polymarket defended its platform and pushed back on the assertions that it is engaged in illegal gambling. The company also stressed its roots as a New York City startup that has evolved into a multi-billion-dollar powerhouse.

"Polymarket was founded in a tiny NYC apartment and now has more than 350 employees here, embodying why people and businesses come here to make it," the statement said. "We believe in New York and we’re staying here," the company said in a statement. While the AG’s decision to copy/paste a recycled lawsuit is disappointing, we’ll fight for our users."