NY and IL Crack Down on Prediction Markets Amid Crypto Lawsuits

A Coordinated State Offensive

A coordinated wave of state-level actions against crypto-powered prediction markets unfolded this week, as New York and Illinois took parallel steps to rein in an industry that has grown rapidly since the 2024 U.S. presidential election.

New York Attorney General Letitia James filed lawsuits against Coinbase and Gemini, asking a state judge to bar both companies from operating in the state unless they obtain licenses from the state Gaming Commission, alleging their platforms amount to illegal sports betting operations. The suits landed in Manhattan state court just one day before New York Governor Kathy Hochul signed an executive order prohibiting state employees from using confidential information acquired through their official duties to profit on prediction markets, and from helping others do the same.

Illinois Governor J.B. Pritzker signed a near-identical order on Tuesday covering state employees under his authority, making the two states the first to formally restrict government workers from participating in these markets.

Market Impact and Legal Stakes

The legal pressure translated immediately into market losses. Shares of Coinbase finished the day down more than 7%, Gemini fell more than 3%, and Robinhood — which was not named in the lawsuit but also operates prediction markets — dropped more than 5%.

Attorney General James outlined sweeping remedies in her complaints:

✦ James is seeking to recoup illegal profits, civil fines equal to triple those profits, and restitution to customers.

✦ She also wants to ban wagers by people under 21 and restrict Coinbase and Gemini from marketing on college campuses.

✦ The state is seeking billions in damages overall.

The Federal-vs.-State Fault Line

At the heart of the dispute is a fundamental question of jurisdiction. Coinbase Chief Legal Officer Paul Grewal stated that prediction markets are federally regulated national exchanges registered with the CFTC, and that Coinbase would continue to fight for federal oversight of these markets.

That position is backed by the federal regulator itself. The CFTC has filed suit against Arizona, Connecticut, and Illinois to block them from bringing charges against prediction market providers, and it filed to join a case out of Nevada to defend those providers — citing its exclusive regulatory authority over commodity derivative markets.

Governor Hochul, however, criticized federal oversight in her executive order, arguing that federal regulators have not required any meaningful ethical standards relating to conduct on these markets, including protections against insider trading.

Kalshi and the Broader Landscape

Notably absent from the New York lawsuits is Kalshi, which powers Coinbase's prediction market infrastructure. Kalshi sued the New York Gaming Commission in October after regulators tried to bar the company from offering its prediction market in the state — a case still working through the Southern District of New York.

Prediction markets have surged in popularity since the 2024 U.S. presidential election, when their real-time probabilities proved more accurate than traditional polling in forecasting Donald Trump's victory. Coinbase and Gemini launched their prediction markets in mid-December and operate them across all 50 states.

The regulatory conflict shows no signs of resolution. With the CFTC actively defending federal jurisdiction while multiple states press forward with their own enforcement actions, crypto exchanges operating in this space face mounting legal uncertainty on both fronts.

Published by Coinplurk.com