New York Sues Polymarket for Illegal Gambling, Wants 3x the Profits Back

New York just picked a fight with Polymarket. And it wants three times the money back.

Attorney General Letitia James and Governor Kathy Hochul filed suit Thursday against the crypto prediction market, accusing it of running an unlicensed gambling operation across the state. The AG's office says these markets fit New York's legal definition of gambling because users stake cash on outcomes they can't control. Polymarket never got a license from the New York State Gaming Commission, per the complaint, so it skipped the taxes that licensed casinos and mobile sportsbooks pay into schools, youth sports, and problem gambling treatment.

The ask is brutal. New York wants a court to bar Polymarket from operating as an unlicensed gambling business, force it to forfeit its gains, repay harmed users, and pay fines worth three times those profits. James didn't mince words. "By skirting New York's laws, Polymarket is targeting the most vulnerable," she said. Hochul piled on, saying the company "knowingly" broke state law and put underage users at risk. That last point has teeth. The complaint notes Polymarket is open to 18 to 20 year olds while New York requires mobile sports bettors to be at least 21.

Here's where it gets messy. Polymarket and rival Kalshi say they aren't gambling sites at all. They're federally regulated exchanges offering "event contracts," a derivative that falls under the CFTC, not state gaming law. And the CFTC agrees. The agency sued nine states in 2026 arguing it should hold exclusive nationwide authority over the whole industry. So we've got a federal regulator squaring off against states that want to police prediction markets themselves. Traders are watching closely.

This isn't a one-off either. New York sued Kalshi in July, went after Coinbase and Gemini in April, and pulled $8 million out of a sweepstakes casino operator earlier this month. Polymarket launched in the US in December 2025, starting with sports and planning to expand into everything else.

The market's verdict: if states keep winning these fights, prediction markets get boxed into a 21-plus, taxed, licensed corner, and crypto's fastest-growing product loses its biggest edge. Keep your eyes on the CFTC's nine-state lawsuit. That's the real battleground.