New York sues Polymarket US as an illegal gambling operation

New York Attorney General Letitia James and Governor Kathy Hochul have sued QCX LLC, which trades as Polymarket US. They allege that its prediction market is an unlicensed gambling operation under state law.

The 24 September filing makes three main allegations:

• Gambling: contracts on uncertain outcomes outside the bettor’s control meet New York’s legal definition of gambling.
• No licence: Polymarket US never obtained a licence from the New York State Gaming Commission, so it avoided the taxes paid by licensed casinos and mobile sports-betting operators.
• Underage users: people aged 18 to 20 could trade on the platform, even though New York requires mobile sports bettors to be at least 21.

The state asks the court to order Polymarket US to forfeit all illegal gains, pay restitution to harmed consumers and pay “fines equal to three times the gains the company made through its illegal actions”. These are allegations and requested remedies; no court has ruled on them.

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

Polymarket goes to federal court

On the same day, Polymarket US filed its own suit in the Southern District of New York (case 1:26-cv-08345). It named the attorney general and the members of the Gaming Commission and seeks declaratory and injunctive relief. The complaint describes the company as a nationwide designated contract market (DCM) under the “exclusive jurisdiction” of the CFTC. It argues that the Commodity Exchange Act pre-empts any state attempt to treat event contracts traded on a DCM as gambling.

The complaint also says New York has already pursued “crushing civil and criminal penalties” against three other CFTC-regulated firms. It cites the state’s petitions against Kalshi (July 2026) and against Coinbase and Gemini (April 2026). The attorney general’s release lists the same actions. New York has therefore now gone after four CFTC-registered event-contract operators in six months.

Where the fight stands

The New York case adds to the split among federal courts over pre-emption. When this suit was filed, the Third Circuit had sided with Kalshi and the Ninth Circuit had sided with the states. The Sixth Circuit’s Ohio and Tennessee decision came the following day. A petition on the question is also pending at the Supreme Court (No. 26-299).

Both sides make public-interest arguments. New York stresses lost tax revenue that funds schools and problem-gambling services, and harm to young people. Polymarket says state enforcement would “fragment a national market”.

Why it matters

For DCMs and the futures commission merchants and brokers that carry their contracts, New York is a large retail market, and the remedies sought here are financial. Disgorgement plus treble fines tied to gains, if granted, would be calculated on revenue from New York users. That puts geofencing and age-gating, already patchy across the sector, at the centre of litigation risk.

For market makers quoting sports contracts, the practical risk is fragmentation. If states win injunctions one by one, liquidity in nominally national contracts could split along state lines. Pricing and hedging models that assume a single national pool of users would then have to change.

Sources

• New York State Office of the Attorney General, “Attorney General James and Governor Hochul Announce Lawsuit Against Polymarket for Running Illegal Gambling Operation”, 24 September 2026 — https://ag.ny.gov/press-release/2026/attorney-general-james-and-governor-hochul-announce-lawsuit-against-polymarket
• QCX LLC d/b/a Polymarket US v. James et al., Complaint for Declaratory Judgment and Injunctive Relief, No. 1:26-cv-08345 (S.D.N.Y., filed 24 September 2026) — https://storage.courtlistener.com/recap/gov.uscourts.nysd.673553/gov.uscourts.nysd.673553.1.0.pdf