New York says Polymarket is running an unlicensed gambling operation and is asking a court for steep penalties. The state wants triple whatever gains Polymarket made, plus $100,000 for every attempt or offer of "sports wagering or mobile sports wagering" in New York. It also seeks a full reckoning of all trades on the platform, what users lost, and what the company earned.
Attorney General Letitia James said, "By skirting New York's laws, Polymarket is targeting the most vulnerable and depriving New York families of critical services and support." Governor Kathy Hochul added, "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."
Later Thursday, Polymarket moved to transfer the state's case out of Manhattan state court and into the U.S. District Court for the Southern District of New York. The company also filed its own federal suit naming James and the New York State Gaming Commission, arguing states cannot regulate swaps, which prediction markets characterize 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," the company wrote, calling it an "erroneous theory" that "federally regulated event-contract trading is 'unregulated gambling.' "
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This tussle lands less than two months after New York brought a similar civil case against Kalshi, Polymarket's chief competitor, and it feeds a national argument over whether states or Washington call the shots on sports-linked event contracts. Polymarket U.S., which launched in December 2025, is regulated by the Commodity Futures Trading Commission. The company also runs an offshore platform started in 2020. As of press time, the CFTC had not provided a comment.
The litigation is the newest flare-up in an escalating feud between states and these platforms. The CFTC has countered with lawsuits against multiple states, maintaining that oversight of the markets belongs to the agency.
The winner in this jurisdiction tug-of-war will influence who sets the rules, collects fees, and wields the stick over prediction markets, which can shape how quickly the products evolve and how often they get interrupted by court orders. Polymarket's chief legal officer, Neal Kumar, defended the company's roots and presence in the city, saying, "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."
Regulatory uncertainty can add costs and delays that trickle down to customers through product tweaks, pauses, or higher fees as cases grind on.
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