Key insights
- New York Attorney General filed lawsuits against Coinbase and Gemini, alleging illegal gambling operations through prediction markets. COIN, GEMI, and HOOD shares fell. The suits highlight the conflict between state and federal regulators regarding the oversight of prediction markets, creating uncertainty for crypto firms operating in this space.
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Some crypto firms' shares fell after the companies found themselves in the government's crosshairs, intensifying the legal argument about whether prediction markets amount to gambling platforms.
New York State Attorney General Letitia James on Tuesday filed lawsuits against crypto exchanges Coinbase Global (COIN) and Gemini (GEMI) in the state's Supreme Court. The suits, which echo other state-level efforts elsewhere in the U.S., allege that the companies are "illegally" running gambling operations in the state through their respective prediction market platforms, which offer event contracts on everything from sports to mid-term elections.
Shares of Coinbase and Gemini finished the day down more than 7% and 3%, respectively. Robinhood (HOOD), which was not named in the lawsuit but also operates prediction markets, fell more than 5%.
The battle between states and prediction market operators continues to heat up, putting state officials at odds with federal regulators.
The prediction markets run by Coinbase and Gemini "are just illegal gambling operations, exposing young people to addictive platforms that lack the necessary guardrails," James said in a statement. She's seeking court orders to require both companies to pay fines, forfeit profits, and give customers restitution.
Coinbase Chief Legal Officer Paul Grewal on social media wrote that "prediction markets are federally regulated national exchanges, registered with the CFTC," and that "Coinbase will continue to fight for the federal oversight of these markets." Gemini did not respond to Investopedia's request for comment in time for publication.
CFTC Chair Mike Selig has said that licensed prediction markets fall under the federal agency's authority. New York's lawsuits against Coinbase and Gemini follow the agency's own early April suit against three states—Arizona, Connecticut, and Illinois—alleging that they were attempting to "outlaw, regulate, or otherwise restrain" prediction market exchanges "that facilitate trading in lawful event contracts" by imposing "inconsistent and contrary obligations on market participants." Prediction market operators Polymarket and Kalshi, the latter which powers Coinbase's prediction markets, were not named in the New York lawsuit. Kalshi in October sued the New York State Gaming Commission, shortly after the regulator sent the prediction market operator a cease-and-desist letter alleging that offering event contracts based on sporting events within the state without a sports gaming license violated the law.
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