Polymarket Countersues New York Hours After State Files…

Prediction market platform Polymarket countersued New York Attorney General Letitia James and the state's Gaming Commission on September 24, hours after New York filed a state lawsuit accusing the platform of operating an illegal, unlicensed gambling operation.James and Governor Kathy Hochul announced the state lawsuit first, after which Polymarket filed its federal countersuit later that day.The countersuit, filed in the United States District Court for the Southern District of New York against James and Gaming Commission officials, came the same day Polymarket also petitioned to move New York's state case to that same court.

What New York Filed Against Polymarket

The state's petition, filed pursuant to Executive Law §63(12), names QCX LLC, which does business as Polymarket US, and alleges the platform violates New York's constitution, penal law, racing law, and the federal Wire Act by operating as an unlicensed gambling business. The Governor's office said the suit seeks a permanent injunction blocking Polymarket from operating in New York without a licence, along with disgorgement of alleged illegal gains, restitution to consumers, and civil penalties equal to three times Polymarket's gains, plus $100,000 for each sports-wagering or mobile sports-wagering offer.The complaint alleges that Polymarket allows New Yorkers as young as 18 to wager on sports, elections, and other events, even though state law requires users to be at least 21 for mobile sports betting. James also argued that Polymarket has avoided paying the taxes that licensed casinos and sportsbooks remit to fund public schools and problem-gambling treatment programmes.

Polymarket's Countersuit and The Federal Preemption Argument

Polymarket responded the same evening by seeking to move the state's case from Manhattan state court to the federal Southern District and filing a separate civil suit against James and Gaming Commission officials, CNBC reported. The company argued that federal law expressly prohibits states from enforcing gambling statutes against federally regulated derivatives exchanges. Polymarket called the state's complaint a "copy/paste recycled lawsuit" and said New York had left it with an "impossible choice" between obeying state regulators and continuing operations under its federal designation, Al Jazeera reported. Chief Legal Officer Neal Kumar said the company had tried to engage with state officials directly on the substance of their concerns, but "they preferred the media hit." QCX LLC, the legal entity behind Polymarket US, has held a Commodity Futures Trading Commission (CFTC) designation as a registered contract market since July 2025. That federal status is at the centre of Polymarket's defence: the company contends that Congress gave the CFTC, not individual states, exclusive authority over event contracts traded on registered exchanges.

The Map: Four Platforms, One State, One Theory

New York has now filed state-level gambling suits against four prediction market operators. James sued Kalshi in July 2026 on the same illegal-gambling theory, and sued Coinbase Financial Markets and Gemini Titan in April for offering prediction market products without state gambling licences. Arizona has separately charged Kalshi over election betting, and the CFTC has pushed back aggressively on state-level enforcement. The federal regulator has sued several states, including Wisconsin, Illinois, Arizona, Connecticut, and New York itself, arguing that it holds exclusive jurisdiction over prediction markets operated on registered exchanges. The conflict has produced mixed results in court, with some states winning temporary orders to block prediction market activity while operators have secured their own injunctions in other jurisdictions.

What A Loss Would Actually Cost

If New York prevails, Polymarket would face an injunction barring unlicensed operation in the state, disgorgement of gains the state classifies as illegal, restitution to affected consumers, and civil penalties equal to three times its gains, plus $100,000 for each sports-wagering or mobile sports-wagering offer.Beyond the direct financial exposure, a New York loss would give other states a template for similar enforcement actions against CFTC-registered platforms, potentially fragmenting the national market into a patchwork of state licensing regimes with different age requirements, tax obligations, and product restrictions.The commercial stakes are substantial. Polymarket currently employs more than 350 people in New York, according to Kumar. A state-by-state licensing regime would complicate expansion for every prediction market operator and could push trading activity to offshore platforms that are harder for any regulator to oversee.