New York sues Polymarket, alleging 'illegal gambling'

• Key insight: New York is continuing its crackdown on prediction market operations in the state through a lawsuit filed against Polymarket this week.
• Expert quote: "Investors should treat litigation against individual prediction markets as a risk across the industry." —PitchBook's Franco Granda
• Supporting data: Consumer adoption of online betting platforms (including prediction markets) was up 40% in July and first-time use was up 3x compared to the start of the year, according to BofA consumer data.

Prediction markets are facing increased legal pressure in New York due to litigation from state officials.

Governor Kathy Hochul and Attorney General Letitia James announced a lawsuit against Polymarket US on Thursday, alleging the company is "running an illegal gambling operation" through its prediction market platform. 

Franco Granda, a senior research analyst at PitchBook specializing in private company coverage, told American Banker that he was not surprised by the lawsuit announcement.

"New York had already taken action against Kalshi, Coinbase, and Gemini, [so] a similar action against Polymarket was foreseeable," he said. Hochul filed a similar case against Kalshi in July, and James sued Coinbase and Gemini for violating New York gambling laws in April. All three cases are pending.

"Investors should treat litigation against individual prediction markets as a risk across the industry," Granda said. "Right now, Kalshi is bearing most of the burden when it comes to court appearances, but one could assume Polymarket will be targeted next. The outcome of these legal challenges will determine what markets Polymarket could offer and to whom."

Polymarket launched in the United States in December 2025 as a service that allows users to participate in prediction markets by buying and selling contracts based on the outcome of events such as elections, economic data or sports.  

The New York lawsuit alleges that Polymarket's prediction markets meet the legal definition of gambling because "the outcomes of the events on which its users are betting are uncertain and outside the control of the bettor or hinge on a game of chance."

The suit is seeking a court order that would stop Polymarket from operating without a state gambling license and requiring the company to pay fines, forfeit all illegal gains and pay restitution.

"By running an unlicensed gambling operation, Polymarket has done more than just knowingly violate state law," Hochul said in a statement. "They have put New Yorkers at risk, especially those underage who are most vulnerable to problem gaming."

"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," Neal Kumar, Polymarket's chief legal officer, said in a statement shared with American Banker. "We believe in New York and we're staying here. While the Attorney General's decision to copy and paste a recycled lawsuit is disappointing, we'll fight for our users."

For banks, the decision to enter the prediction-markets business will depend on the size of the opportunity weighed against potential headwinds, including regulatory uncertainty, consumer-protection concerns, insider trading and market manipulation.

"The commercial question extends beyond potential fines and customer access," Granda said. "In my view, it could impact partners' willingness to commit resources and the valuation investors are willing to pay."

Polymarket's message has been resonating with consumers since its U.S. relaunch as other prediction markets invest heavily in their marketing budgets, according to Bank of America analysts.

"Polymarket gained mainstream recognition during the 2024 U.S. presidential election," BofA analysts said. "The election helped popularize founder Shayne Coplan's view that requiring participants to put money behind an outcome can produce more informative forecasts than polling alone."

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The number of consumers spending money on prediction markets and similar platforms is continuing to rise.

According to Bank of America customer account data published this month, around 5% of BofA customers participated in online betting in July. The bank defines "online betting" as "payments to and from companies that offer online betting platforms, namely prediction markets and sports betting." Consumer adoption of online betting platforms was up 40% in July compared to the start of the year, according to BofA's data, and the number of first-time users jumped more than three times that of January users in June and July of this year.

A consumer debt survey published by credit data platform Spinwheel this month similarly found that 12% of the 600 consumers surveyed had participated in prediction markets, with 7% borrowing money to do so. Younger generations represented the highest proportion of responses in the survey, with 28% of Gen Z respondents having participated in prediction markets and 21% of millennials doing so.

The question of who is allowed to regulate prediction markets — the Commodity Futures Trading Commission or state gaming regulators — may be decided by the Supreme Court due to conflicting rulings among different appellate courts over the past year. In the meantime, New York is joining several other states, such as Arizona and Nevada, in seeking to temporarily block the platforms from operating in their jurisdictions.