TL;DR
- New York filed a lawsuit against Polymarket seeking to stop the platform from serving users in the state without a gaming license.
- Polymarket moved the dispute to federal court and argues that the CFTC has exclusive authority over its event contracts.
- Kalshi’s pending Second Circuit appeal could affect how the federal court handles New York’s case against Polymarket.
New York sued Polymarket on September 24, accusing its US prediction-market platform of running an illegal gambling business. In the lawsuit, the state asks the court to bar Polymarket from operating an unlicensed gambling business in the state.
Within hours, Polymarket moved the case into federal court. It also filed a separate lawsuit arguing that the Commodity Futures Trading Commission (CFTC), the federal derivatives regulator, holds exclusive authority over its event contracts.
New York says event contracts qualify as gambling
Attorney General Letitia James announced the case with Governor Kathy Hochul and filed the petition in New York County Supreme Court. The respondent is QCX LLC, which operates Polymarket US. The petition contends that users stake money on uncertain future events outside their control. On that reasoning, the contracts fall within New York’s legal definition of gambling.
The state asserts that Polymarket accepted wagers without a license from the New York State Gaming Commission. According to the petition, users aged 18 to 20 can trade sports markets on the platform, even though New York sets 21 as the minimum age for mobile sports betting.
The complaint cites markets on New York professional and college teams, including Mets games and a Buffalo vs. Albany college football matchup. It points to an August 2026 App Store listing that advertised Polymarket as legal in all 50 states. None of these claims has yet been tested in court.
>>> Read more: Polymarket CFTC Approval: Risks Behind the U.S. Relaunch
The state seeks a block, penalties and restitution
New York seeks a permanent injunction barring Polymarket from operating an unlicensed gambling business in the state. The attorney general wants an accounting of bets, customer losses and payments connected to the platform. She is asking for restitution to users and disgorgement of allegedly illegal gains as well.
The petition requests a penalty equal to three times the gains attributed to the alleged illegal conduct. It seeks a further $100,000 for each unauthorized offer or attempted offer of sports wagering in New York. Any final amount would depend on the court’s findings and its count of the relevant activity.
Polymarket takes the dispute to federal court
Polymarket removed the state’s case to the U.S. District Court for the Southern District of New York the same day. Removal is a procedural step that transfers a lawsuit from state court to federal court, and the case now carries the federal number 1:26-cv-08338. New York can ask the federal court to remand the case, or send it back, to state court.
On the evening of September 24, Polymarket also filed its own lawsuit in Manhattan federal court against New York’s James and officials of the Gaming Commission, Reuters reported. The company argues that its contracts fall under the CFTC’s exclusive jurisdiction and that states cannot regulate them as gambling products. Its complaint calls New York’s position “an extraordinary assertion of state power squarely foreclosed by federal law.”
>>> Read more: CFTC Defends Prediction Markets Against State Challenges
A July ruling against Kalshi
The case is part of a broader fight over who regulates prediction markets. Platforms describe event contracts as federally regulated financial instruments. State authorities treat contracts tied to sports and other uncertain events as subject to local gambling laws. Other states, including Arizona, Massachusetts and Nevada, have sued prediction-market platforms. At the same time, the CFTC has sued states to defend its claim of exclusive authority. James filed similar petitions against Coinbase and Gemini in April and against Kalshi in late July.
Judge Analisa Torres of the Southern District ruled against Kalshi on July 7, in a separate lawsuit Kalshi brought against the Gaming Commission. She found that the Commodity Exchange Act does not override New York’s gambling laws as applied to Kalshi’s sports-event contracts. On July 27 she denied Kalshi’s request for an injunction pending appeal. Polymarket’s case will turn on its own facts and arguments, but the Kalshi rulings show that federal registration gave that platform no shield from state enforcement.
>>> Read more: Kalshi Must Restore Michigan Trades After CFTC Order
The Kalshi appeal at the Second Circuit
Kalshi has appealed the July ruling to the U.S. Court of Appeals for the Second Circuit, whose decisions bind the Southern District. The appeal could also shape how the federal court approaches New York’s lawsuit against Polymarket, particularly the question of whether federal commodities law preempts the state’s gambling statutes. A remand would change that for the state’s petition, since New York state courts are not bound by Second Circuit decisions.
