Polymarket Sued by New York AG Over Alleged Illegal Gambling Operations

New York Attorney General Letitia James filed a lawsuit against Polymarket on Thursday, accusing the prediction market platform of conducting an illegal gambling enterprise within the state.

The legal action targets QCX LLC, the entity behind Polymarket US, and aims to halt its activities in New York, recover funds obtained through allegedly unlawful means, and provide restitution to users.

The complaint appears standard on the surface, resembling other prediction market cases. However, three aspects stand out that did not make most headlines.

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

This distinction matters.

Polymarket re-entered the US market in December 2025 via a CFTC-regulated exchange. The company treats that federal approval as justification for offering prediction markets in states such as New York.

New York is directly contesting that approach.

The state argues that a federal licence does not automatically permit Polymarket to sell products New York deems gambling without also securing a state gambling licence.

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 only seeking to block Polymarket from operating. The financial penalties extend further.

The state wants Polymarket to hand over gains derived from alleged illegal activity, compensate impacted users, and pay penalties three times those gains.

That could make the case far costlier than simply exiting the New York market.

3. US Courts Already Disagree on Who Is Right

The lawsuit has implications beyond Polymarket. Prediction market operator Kalshi has faced similar legal battles across the country.

In April, a federal appeals court ruled that New Jersey could not regulate Kalshi’s federally approved prediction markets as the state had tried.

Then in August, a different federal appeals court came to a contrasting conclusion in a Nevada case, determining that federal law probably did not prevent Nevada from applying its gambling rules to Kalshi’s sports contracts.

That split leaves a key 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 has a lengthy track record of crypto enforcement.

Her office obtained over $22 million from KuCoin in 2023 after suing the exchange for unlawful operations in New York. That case drew attention because James argued that Ethereum could be classified as a security.

In 2024, her office reached a settlement worth up to $2 billion with Genesis, then the biggest crypto settlement in New York state history.

More recently, she has focused on prediction markets, suing Coinbase, Gemini and Kalshi before filing the Thursday case against Polymarket.

Polymarket now becomes the latest firm caught in a broader dispute over who has authority to regulate prediction markets in the US.