New York Sues Polymarket Over Unlicensed Gambling as Company Countersues in Federal Court

On September 24, 2026, New York Attorney General Letitia James and Governor Kathy Hochul announced that the state had sued QCX LLC, which trades as Polymarket US, alleging that the prediction market company runs an illegal, unlicensed gambling operation. The lawsuit was filed in New York County court and argues that Polymarket accepts wagers from the public without a license from the New York State Gaming Commission. Hours later, Polymarket countersued in federal court, seeking to move the state case to the U.S. District Court for the Southern District of New York and filing its own civil suit against James and New York State Gaming Commission officials. The rapid exchange set up a conflict over whether states or the federal government have the power to regulate event contracts.

Polymarket runs an offshore platform founded in 2020, and its main platform has been restricted in the United States since 2022. In December 2025, Polymarket US debuted after the company acquired QCX, a CFTC-licensed firm, for $112 million. The Commodity Futures Trading Commission regulates Polymarket US, and the company views its event contracts as swaps, a category of financial instruments that falls under federal jurisdiction. New York officials reject that framing, describing the business as gambling with a different name.

The state's complaint, which runs more than 30 pages, alleges that Polymarket is sidestepping its obligation to pay taxes like licensed casinos and mobile sports gambling platforms do. New York says tax revenue from gambling regulation funds public schools, youth sports and problem gambling treatment. The lawsuit also claims that Polymarket is available to users between the ages of 18 and 20, even though New York law requires a person to be at least 21 years old to participate in mobile sports betting. Attorney General James said: '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 added that Polymarket is 'targeting the most vulnerable.' Governor Hochul said Polymarket 'put New Yorkers at risk, especially those underage who are most vulnerable to problem gaming.'

Polymarket's response was swift. Chief Legal Officer Neal Kumar said the company has more than 350 employees in New York and called the Attorney General's 'copy/paste' lawsuit disappointing. Kumar said Polymarket had tried to work out differences with state officials, but he said officials 'preferred the media hit.' In its federal countersuit, Polymarket argues that the CFTC has exclusive authority to regulate prediction markets and that New York has left the company with an 'impossible choice.' The company also filed a separate civil suit against James and New York State Gaming Commission officials, arguing that states cannot regulate swaps.

Key Facts

New York's lawsuit was filed on September 24, 2026, in New York County court against QCX LLC, also known as Polymarket US. The state asks the court to stop Polymarket from operating as an unlicensed gambling business, order it to forfeit all illegal gains, pay restitution to users and pay fines equal to three times those gains. The complaint also seeks $100,000 for each attempt or offer of unauthorized sports wagering or mobile sports wagering in New York, plus an accounting of all trades, money lost by users and Polymarket's earnings. New York alleges that Polymarket is not licensed with the New York State Gaming Commission in any capacity. The complaint says Polymarket 'accepts wagers from members of the public as a gambling business in New York in flagrant disregard of New York's State Constitution, penal laws, and other statutes.' It also alleges keeping of gambling records and a breach of the federal Wire Act.

The state's allegations focus heavily on advertising and age limits. New York claims that Polymarket has advertised sports betting in particular since July 2025. The lawsuit points to an August 17, 2025 post on X about the company's US mobile app launch that said it was 'BAD NEWS (For sportsbooks).' New York officials argue that such marketing encouraged gambling among young people, targeting users as young as 18 while state law requires 21 for mobile sports betting. The complaint also alleges that Polymarket's markets are open to 18 to 20 year olds.

Polymarket is valued at more than $20 billion, according to the lawsuit. The company has investment from 1789 Capital, which is backed by Donald Trump Jr., and it has an endorsement deal with LeBron James reported by Front Office Sports to be worth $15 million a year. Its US app launched in December 2025 after the $112 million acquisition of CFTC-licensed QCX. The lawsuit comes nearly two months after New York sued rival Kalshi in a similar action on July 31, 2026. In that case, New York sought disgorgement, a penalty of three times that amount and $36 billion in compensatory damages. Because Kalshi is headquartered in New York, the CFTC read the requested order as stopping a federally registered exchange everywhere and on August 11 ordered Kalshi to keep operating. The broader enforcement campaign by Attorney General James includes suits against Coinbase and Gemini in April, an $8 million settlement with a sweepstakes casino operator, and an April executive order by Governor Hochul barring state employees from insider trading on prediction markets. The Trump administration and the CFTC side with prediction markets, and in August the CFTC declared a 'market emergency' in New York to stop the state from applying gambling laws to Kalshi. CNBC reported on September 24 that New York sued Polymarket US and that Polymarket countersued the same day. Ars Technica reported on September 24 that the suit alleges Polymarket is 'gambling with a different name' and violates state gambling and tax laws. Al Jazeera reported on September 24 that the complaint is more than 30 pages and that Polymarket is valued at more than $20 billion. iGaming Times reported on September 25 that New York seeks three times Polymarket's gains and $100,000 for each unauthorized sports wagering offer.

Analysis

What this really means is that the fight over prediction markets has moved from a regulatory skirmish into a constitutional showdown over who gets to define gambling. New York's lawsuit treats Polymarket's event contracts as wagers that fall under state gambling and tax laws. Polymarket's countersuit treats the same contracts as swaps that fall under the exclusive jurisdiction of the CFTC. Both sides cannot be right. The outcome will determine whether a federally registered exchange can operate nationwide without obtaining licenses from individual states, or whether states can impose their own gambling rules on products that look like bets to ordinary users.

The timing and the sequencing matter. New York sued Kalshi on July 31, and the CFTC responded in August by declaring a market emergency and ordering Kalshi to keep operating. Now New York has sued Polymarket, and Polymarket has run to federal court within hours. The company is trying to avoid state court in Manhattan, where a judge might be more receptive to New York's gambling framing, and to land in the Southern District of New York, where federal preemption arguments may find a more sympathetic audience. By filing its own suit against James and Gaming Commission officials, Polymarket is also trying to put the state on the defensive, arguing that New York cannot regulate swaps at all.

The bigger picture here is that the legal uncertainty is now a business risk for every prediction market, not just Polymarket. Polymarket is valued at more than $20 billion and has more than 350 employees in New York. If New York succeeds in shutting down its US operations, the company faces forfeiture of gains, restitution to users and fines of three times its gains plus $100,000 for each unauthorized sports wagering offer. If Polymarket succeeds in federal court, states may find their gambling laws preempted when applied to CFTC-regulated event contracts. That would be a major victory for the prediction market industry, but it would also raise questions about consumer protection, tax revenue and the line between finance and gambling.

Why It Matters

The immediate impact falls on Polymarket's US users, the company's employees in New York, and the state's public services. If the state gets the injunction it seeks, Polymarket US could be forced to stop operating as an unlicensed gambling business in New York. Users could lose access to the platform, and the company could be required to pay restitution. The state also wants an accounting of all trades, money lost by users and Polymarket's earnings. New York says tax revenue from gambling regulation funds public schools, youth sports and problem gambling treatment. If prediction markets avoid those taxes, the state argues, licensed casinos and mobile sports betting platforms face an uneven playing field, and critical programs lose funding. The age limit dispute is central: New York requires a person to be at least 21 to participate in mobile sports betting, but the state alleges Polymarket's markets are open to 18 to 20 year olds. That allegation turns a jurisdictional fight into a public health and consumer protection issue.

Beyond New York, the outcome will shape how prediction markets operate across the United States. Rival Kalshi is already fighting a similar case. Coinbase and Gemini have been sued by James as part of a broader enforcement campaign. The CFTC has shown that it will intervene to protect federally registered exchanges, even declaring a market emergency in August. If the Supreme Court ultimately decides whether states can restrict sports gambling on prediction markets, the ruling will affect not only Polymarket and Kalshi but also any financial platform that offers event contracts.

Next Up

Polymarket's first procedural move is to seek removal of New York's lawsuit from state court in Manhattan to the U.S. District Court for the Southern District of New York. The company has also filed its own civil suit against Attorney General James and New York State Gaming Commission officials, arguing that the CFTC has exclusive authority over its event contracts. New York will likely oppose those efforts and continue to press for an injunction, forfeiture, restitution and fines. The court will have to decide whether the case stays in state court or moves to federal court. The larger question is whether the Supreme Court will step in. The sources note that the Supreme Court may ultimately decide whether states can restrict sports gambling on prediction markets. In the meantime, the CFTC has already shown a willingness to support prediction markets, and the Trump administration has sided with them. New York has shown that it intends to keep suing, having already targeted Kalshi, Coinbase and Gemini. With dueling lawsuits filed on the same day, the next phase will be a fight over jurisdiction, preemption and the meaning of gambling in the age of event contracts.