NY AG Sues Coinbase and Gemini for $3.4B Over Prediction Markets

New York Attorney General Letitia James filed lawsuits against Coinbase Financial Markets and Gemini Titan on April 21, accusing both companies of running illegal gambling operations through their prediction market platforms. The state is seeking at least $2.2 billion from Coinbase and $1.2 billion from Gemini in damages, profit disgorgement, and triple penalties.

Prediction markets are caught between federal approval and state crackdowns. Follow Web Snack to track how this legal battle reshapes crypto trading.

Context

Coinbase launched its prediction markets service in January 2026. Gemini followed with a similar offering. Both platforms let users trade binary contracts on the outcomes of sports games, elections, entertainment events, and commodity prices - all without obtaining a New York State Gaming Commission license.

The lawsuits arrive during a nationwide regulatory collision between states and the federal government over who gets to regulate prediction markets. On April 2, the CFTC sued Arizona, Connecticut, and Illinois to block those states from enforcing gambling laws against prediction market operators. Four days later, the Third Circuit ruled 2-1 in KalshiEX v. Flaherty that the Commodity Exchange Act preempts state gambling laws for sports-related event contracts on CFTC-registered exchanges.

New York joins at least seven states - including Nevada, Washington, Massachusetts, and Michigan - that have moved against prediction market operators in 2026. Kalshi, the largest standalone prediction market exchange, was not named in these suits. The company preemptively sued the New York Gaming Commission in October 2025, and that case is still pending in the Southern District of New York.

Details

James filed both complaints in state court in Manhattan. The core argument: prediction markets fit New York's legal definition of gambling because outcomes are outside bettors' control or hinge on chance. The AG's office labeled users "bettors" and described each contract as "a bet."

The suits target three specific violations. First, neither company holds a Gaming Commission license, meaning they avoid the roughly 51% gross revenue tax that licensed casinos and mobile sportsbooks pay in New York. Second, both platforms allowed users aged 18 to 20, while state law requires participants to be at least 21 for mobile sports betting. Third, both platforms offered contracts on college sports involving New York teams, which violates state prohibitions on college game betting.

"Prediction markets are federally regulated national exchanges, registered with the CFTC. This issue is proceeding in New York federal court as we speak." - Paul Grewal, Chief Legal Officer at Coinbase

Gemini declined to comment. Coinbase shares dropped roughly 6% on the news, shedding about $4 billion in market capitalization.

Impact

The lawsuit puts real money at risk for both companies. James is demanding full disgorgement of prediction market profits earned in New York, civil fines at triple those profits, restitution to customers, a ban on serving anyone under 21, and a prohibition on marketing to college campuses.

For the broader prediction markets industry, New York's filing adds pressure at a volatile moment. The Third Circuit backed federal preemption of state gambling laws on April 6, but the Ninth Circuit heard oral arguments on April 16 in a similar case out of Nevada - and judges there reportedly signaled skepticism toward preemption. If the circuits split, the question goes to the Supreme Court. Prediction market traders on Kalshi's own platform currently assign a 64% probability that SCOTUS will take a sports event contract case by the end of 2026.

Congress is also getting involved. Senators John Curtis (R-Utah) and Adam Schiff (D-Calif.) introduced the Prediction Markets Are Gambling Act on March 23, which would amend the Commodity Exchange Act to explicitly reclassify sports and casino-style event contracts as gambling outside the CFTC's jurisdiction.

Next Steps

Coinbase has signaled it will fight the lawsuit in federal court, arguing that CFTC jurisdiction preempts state-level gambling regulation. The company already sued Connecticut, Michigan, and Illinois in December 2025 to block similar state-level enforcement.

Kalshi's pending motion in the Southern District of New York could determine whether the AG can bring a similar action against that platform. Legal analyst Daniel Wallach noted that if the court denies Kalshi's preliminary injunction, Kalshi is likely next in line.

Several deadlines loom. The CFTC's public comment period on event contract rulemaking closes April 30. Coinbase reports Q1 2026 earnings on May 7. The Fourth Circuit hears oral arguments in a Maryland prediction markets case the same day. New Jersey's deadline to petition for rehearing en banc in the Third Circuit is expected in late May. Any of these could shift the trajectory of the entire legal fight.

States and federal regulators are racing to define prediction markets. Subscribe to Web Snack for weekly breakdowns of the rulings that matter.

P.S. This article is for informational purposes only and does not constitute investment advice. Always conduct your own research and make independent decisions.