New York Attorney General Letitia James has filed a lawsuit against the prediction market Polymarket,alleging the platform operates an unlicensed gambling business. The state is seeking to block the company's activities and recover significant unpaid taxes.
The demand for triple profits and tax restitution
The legal action against Polymarket seeks more than just a cease-and-desist order. According to the report, Attorney General Letitia James is asking the court to force the company to forfeit all illegal gains and pay fines equivalent to three times its profits. A primary driver of the suit is the company's failure to register with the New York State Gaming Commission, a move that allegedly allowed Polymarket to bypass taxes intended for public schools, youth sports, and problem gambling treatment programs.
Governor Kathy Hochul has voiced strong support for the litigation, labeling the company a "bad corporate actor." The administration argues that by circumventing state laws, the platform is depriving New York families of critical services and putting vulnerable residents, particularly minors, at risk of gambling addiction.
A jurisdictional battle between state AGs and the CFTC
This litigation is part of a much larger conflict regarding who holds the authority to regulate prediction markets. While a coalition of 44 state attorneys general and dozens of Native tribes are fighting to have these platforms regulated by state gambling commissions, the Trump administration has signaled that the Commodity Futures Trading Commission (CFTC) should be the sole regulator . This creates a volatile environment for major players like Kalshi and Polymarket.
The scale of the industry makes this jurisdictional fight highly consequential. As the report notes, Kalshi reportedly controls roughly 90% of the US market for prediction platforms, with traders movig $5.4 billion on the platform in the first eight months of the year. This massive volume of capital is what has drawn the intense scrutiny of state-level regulators.
The $17,000 Santos scandal and other insider trading risks
The meteoric rise of prediction markets has been shadowed by significant concerns regarding market integrity and insider trading. The report highlights how former Representative George Santos allegedly earned $17,000 in illicit profits by betting on his own attendance at the State of the Union. In another instance, an Army offficer reportedly made $400,000 through similar means, illustrating the systemic vulnerability of these platforms to users with privileged information.
Beyond insider trading, regulators are concerned about the demographic of users engaging with these markets. Critics have argued that platforms like Kalshi and Polymarket provide an alternative way for young adults between the ages of 18 and 21 to gamble, potentially bypassing the protections found in traditional sportsbooks. This concern is compounded by data suggesting that a significant portion of trades on Kalshi involve sports and parlays.
Will direct dialogue prevent a Polymarket exit from New York?
Polymarket’s leadership has responded to the allegations by characterizing the lawsuit as a "media hit" rather than a substantive legal challenge. Chief Legal Officer Neal Kumar emphasized that the company remains deeply rooted in New York City, where it currently employs more than 350 people. However, several questions remain unanswered regarding the company's future in the state. It is unclear if the Attorney General's office will engage in the direct dialogue Kumar has requested, or if the state will push for a total ban on the platform's operations. Furthermore, while Polymarket maintains high-profile data-sharing partnerships with entities like Dow Jones, the legal pressure may force a significant shift in how these companies manage their New York-based presence.
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