3 Surprising Facts About New York’s Polymarket Lawsuit

New York Attorney General Letitia James sued Polymarket on Thursday, accusing the prediction-market giant of running an illegal gambling business in the state.

The case targets QCX LLC, which operates as Polymarket US, and seeks to stop its New York operations, recover allegedly illegal gains, and compensate users.

The lawsuit looks normal on paper, like all the other prediction market cases. But there are 3 unique facts that most headlines missed. 

1. New York Is Targeting Polymarket’s Federally Regulated US Business

This is an important distinction. 

Polymarket returned to the US in December 2025 through its CFTC-regulated exchange. It currently treats that federal approval as the basis for offering prediction markets in states including New York.

New York is directly challenging that model.

The state says a federal licence does not automatically allow Polymarket to offer products that New York considers gambling without getting a state gambling licence as well.

Calling it a “prediction market” doesn’t change the facts.If you’re taking bets in New York, our gambling laws apply.Today, @NewYorkStateAG and I sued Polymarket for running an illegal gambling operation and preying on vulnerable New Yorkers.

— Governor Kathy Hochul (@GovKathyHochul) September 24, 2026

2. New York Wants More Than a Ban

Attorney General James is not just asking the court to stop Polymarket from operating. The financial demands go much further.

New York wants Polymarket to surrender gains allegedly made through illegal activity, compensate affected users and pay fines equal to three times those gains.

That could make the case considerably more expensive than simply leaving the New York market.

3. US Courts Already Disagree on Who Is Right

The lawsuit is much bigger than Polymarket. Prediction market Kalshi has been fighting similar cases around the country.

In April, a federal appeals court ruled that New Jersey could not regulate Kalshi’s federally regulated prediction markets in the way the state attempted.

Then in August, another federal appeals court reached a different conclusion in a Nevada case, finding that federal law was unlikely to block Nevada from applying its gambling rules to Kalshi’s sports contracts.

That disagreement leaves one major question unresolved: can federal regulation override state gambling laws?

Update: Polymarket has removed the New York AG’s civil enforcement action to federal court in the SDNY https://t.co/932DbGgga1 pic.twitter.com/JUOYf7bGii

— Daniel Wallach (@WALLACHLEGAL) September 24, 2026

Letitia James Has Been Here Before

James already has a long record of crypto enforcement. 

Her office secured more than $22 million from KuCoin in 2023 after suing the exchange for operating illegally in New York. The original case drew attention because James argued that Ethereum could be considered a security.

In 2024, her office secured a settlement worth up to $2 billion from Genesis, then the largest crypto settlement in New York state history.

More recently, she has turned her attention to prediction markets, suing Coinbase, Gemini and Kalshi before filing Thursday’s case against Polymarket.

Polymarket is now the latest company caught in a much larger fight over who gets to regulate prediction markets in America.