New York Faces Legal Challenge as Polymarket Countersues Over Regulations

New York state sued Polymarket U.S. on Thursday, alleging that the prediction market company is operating an illegal gambling platform in violation of state laws. Polymarket later Thursday countersued the state, filing its own lawsuit against the state and officials in its Gaming Commission in federal court.

It's the latest nationwide legal confrontation

It is the latest in a series of legal showdowns nationally over the question of whether state or federal authorities will have the power to regulate the offering of sports-based event contracts on prediction markets.

The suits come nearly two months after the state sued Polymarket’s primary competitor, Kalshi, in a similar civil action.

“By skirting New York’s laws, Polymarket is targeting the most vulnerable and depriving New York families of critical services and support,” New York Attorney General Letitia James said in a statement. 

Governor Kathy Hochul said, “By running an unlicensed gambling operation, Polymarket has done more than just knowingly violate state law, they have put New Yorkers at risk, especially those underage who are most vulnerable to problem gaming.”

Polymarket responded later Thursday by seeking to move the lawsuit from state court in Manhattan to U.S. District Court for the Southern District of New York, a federal court.

The company countersues and also separately filed its own civil suit against James and the New York State Gaming Commission, arguing that states do not have the power to regulate swaps, which prediction markets view their event contracts as.

“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 its suit.

“Defendants have asserted that federally regulated event-contract trading is ‘unregulated gambling,’ ” the suit said, calling that an “erroneous theory.”

Penalties and earnings

New York’s lawsuit asks for penalties, including three times the amount of any Polymarket gains, and to pay $100,000 for each attempt or offer of “sports wagering or mobile sports wagering” in New York. The lawsuit also asks Polymarket to provide an account of all trades placed on the platform, the money lost by users and the amount Polymarket earned.

Polymarket U.S. debuted in December 2025 and is regulated by the Commodity Futures Trading Commission, the federal agency that regulates prediction markets platforms.

The company also runs an offshore predictions platform, which was founded in 2020. The CFTC didn’t immediately respond to a request for comment.

The lawsuit is the latest in the escalating regulatory feud between states and the platforms. The CFTC has retaliated, suing several states and asserting it has the right to regulate the markets.

Polymarket defended itself against the latest New York action.

“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. We believe in New York and we’re staying here. While the AG’s decision to copy/paste a recycled lawsuit is disappointing, we’ll fight for our users,” said Neal Kumar, the chief legal officer for the platform.