Polymarket and New York sue each other over prediction market contracts and gambling rules

New York sued Polymarket U.S. on Thursday, saying the prediction market operator is running an illegal gambling platform under state law. Polymarket then counter-sued the same day in federal court, turning the dispute into another test of who gets to regulate event contracts: state gambling regulators or federal market regulators.

1. New York Attorney General Letitia James said Polymarket is “bypassing New York’s laws” and targeting “the most vulnerable,” while Governor Kathy Hochul said the company has operated “a business of unlicensed gambling” and put New Yorkers, especially minors, at risk from gambling problems.
2. Polymarket responded by seeking to move the Manhattan state case to the U.S. District Court for the Southern District of New York and filing its own civil suit against James and the New York State Gaming Commission. Its argument is straightforward: states do not have the power to regulate swaps, which prediction markets say is what their event contracts are.
3. In its federal filing, Polymarket said the case is meant to stop “imminent and irreparable harm” from New York gambling laws being applied to federally regulated derivatives exchanges, an application it says Congress has expressly prohibited. The company also called the state’s claim that federally regulated event-contract trading is “unregulated gambling” a “theory” that is wrong.
4. New York’s lawsuit seeks penalties that include three times the amount of Polymarket’s winnings, plus $100,000 for each attempt or offer of “sports bets or mobile sports bets” in New York. The state also wants Polymarket to account for all platform activity, user losses, and the amount the company earned.
5. The state action comes almost two months after New York filed a similar civil case against Kalshi, Polymarket’s main competitor. For anyone running a high-risk payments stack, the useful part is not the courtroom theater; it is the same operational question resurfacing in a different wrapper: if a product looks like gambling to one regulator and a federally regulated derivatives product to another, which side do your PSPs, acquirers, and banks believe when they decide whether to keep processing it?

Polymarket U.S. debuted in December 2025 and is regulated by the Commodity Futures Trading Commission (CFTC), the federal agency that oversees prediction market platforms. That makes this dispute more than a local enforcement action: it sits right on the line between gambling compliance and federally regulated event-contract trading.