New York Attorney General’s Office has sued QCX LLC, the operator of Polymarket in New York, alleging that it runs an unlicensed gambling business in the state. The lawsuit seeks to halt Polymarket’s New York operations, recover proceeds deemed to have come from unlawful activity, compensate affected users and impose a penalty of up to three times the relevant proceeds.
The case goes beyond whether Polymarket can continue serving New York users. It tests the boundary between federal regulatory approval and state gambling law. Prediction markets have expanded rapidly in the United States, with several platforms using the federal commodities and derivatives framework to offer event contracts, while state authorities argue that some of those products remain gambling activities requiring separate state authorization.
Polymarket Relies on Federal Regulatory Approval
Polymarket returned to the US market in December 2025 through an exchange regulated by the Commodity Futures Trading Commission, or CFTC. The company currently treats its federal regulatory approval as a key basis for offering prediction-market products in multiple states, including New York.
New York’s lawsuit directly challenges that approach. The state argues that federal authorization does not automatically allow a platform to offer products that New York law classifies as gambling. Under that position, Polymarket could still need a New York gambling license or have to establish that its products fall outside the state’s definition of gambling, even if the business operates within a federal regulatory framework.
The dispute could ultimately turn on a specific question: whether federal oversight prevents states from applying their gambling laws to comparable prediction-market products.
The State Is Seeking More Than a Shutdown
The financial claims in the lawsuit extend beyond an injunction. New York is seeking the surrender of proceeds allegedly generated through unlawful activity, compensation for affected users and a penalty equal to three times those proceeds.
If the court grants the requests, QCX LLC could face costs beyond leaving the New York market, including the recovery of historical revenue, user compensation and additional penalties. The lawsuit does not yet establish the specific amount of proceeds at issue or the number of affected users, and it remains unclear whether the court will approve all of the requested remedies.
Kalshi Cases Have Produced Conflicting Rulings
Polymarket’s legal dispute is not an isolated one. Prediction-market operator Kalshi has faced similar lawsuits and regulatory conflicts in several US states, with courts moving in different directions.
In April, a federal appeals court ruled that New Jersey could not regulate Kalshi’s federally supervised prediction market in the manner it had sought. The decision was viewed as supporting the primacy of federal oversight.
In August, however, another federal appeals court reached a different conclusion in a Nevada case. The court said federal law was unlikely to prevent Nevada from applying its gambling rules to sports-related contracts offered by Kalshi.
The split has made the legal uncertainty facing prediction markets more concrete. Products subject to the same federal oversight may still face different licensing requirements, product restrictions or enforcement measures from state to state. New York’s case against Polymarket could push that question toward higher-level judicial review.
New York Has Repeatedly Targeted Crypto Platforms
The New York Attorney General’s Office has previously taken enforcement action against multiple crypto-asset companies. In 2023, after suing KuCoin over alleged unlicensed operations, the office recovered more than $22 million. The case also prompted debate over whether ether could be treated as a security.
In 2024, the office reached a settlement of up to approximately $2 billion with Genesis, at the time one of the largest crypto-industry settlements in New York.
The state’s recent enforcement focus has also extended to prediction markets, with Coinbase, Gemini and Kalshi facing related lawsuits or regulatory actions. The case against Polymarket therefore reflects a broader dispute over whether US prediction markets should be governed primarily by federal agencies or remain subject to state gambling laws as well.
Until the courts issue further rulings, Polymarket’s federal regulatory status and its authority to operate in New York remain separate questions that must be assessed independently.