New York Sues Polymarket for Unlicensed Gambling — Polymarket Files Immediate Counter-Suit

New York Attorney General Letitia James and Governor Kathy Hochul filed a lawsuit against Polymarket US on September 24, 2026 alleging unlicensed gambling and underage access — the same two theories used in the July 31 Kalshi complaint. Polymarket filed a counter-suit in Manhattan federal court the same day, seeking a declaration that New York's gambling laws are pre-empted by the Commodity Exchange Act and a preliminary injunction blocking enforcement. The duelling-lawsuit structure is identical to Kalshi's September 2026 response to its July complaint, which is now on appeal to the Second Circuit after Kalshi's PI was denied by Judge Torres.

For UK readers, New York's enforcement approach is analogous to the Gambling Commission opening parallel formal investigations against two operators under the same breach category simultaneously, rather than waiting for one case to conclude before starting the other. In New York's case, the breach category is operating without a state licence and permitting 18-20-year-olds — a bracket the state's mobile sports betting regime requires to be excluded (New York has a 21+ minimum). The operators counter that federal CFTC licensing pre-empts the state licensing requirement: they have a federal DCM designation, which they argue displaces New York's licensing authority entirely. Two of the three circuits that have ruled on this question — the Sixth (September 25) and the Ninth (August 28) — have now held that CFTC jurisdiction does not pre-empt state gambling law. The Third Circuit (April) held the opposite. New York's Second Circuit has not yet ruled.

New York's decision to bring the Polymarket complaint before the Second Circuit has ruled on the Kalshi case creates an unusual multi-party parallel litigation. Kalshi's New York federal PI denial is before the Second Circuit on appeal; Polymarket's new counter-suit will go through the same SDNY judge pool and then the same Second Circuit. The Second Circuit could hear the two appeals in tandem or sequentially. If the Second Circuit follows the Ninth and Sixth Circuits — ruling against CFTC preemption — that would give New York a binding Second Circuit precedent covering both Kalshi and Polymarket simultaneously. If it follows the Third Circuit — ruling for CFTC preemption — New York would lose both enforcement actions and face a three-circuit split favouring the platforms. The Second Circuit's decision, expected sometime in 2027, would add a fourth circuit ruling to a docket that SCOTUS is already expected to take.

The timing of the Polymarket complaint — two months after the Kalshi complaint, one day before the Sixth Circuit's ruling, and four days before the SCOTUS long conference — suggests that New York's enforcement calendar is driven by strategic litigation goals rather than organic case development. Filing against Polymarket before SCOTUS acts on the cert petitions ensures that New York has active litigation in both New York cases regardless of what the Supreme Court does: if SCOTUS grants cert and rules for the platforms, New York's suits become moot; if SCOTUS denies cert, the Second Circuit cases proceed. If SCOTUS grants cert and stays all lower court proceedings pending its ruling (which it can do), the New York Polymarket case would be frozen alongside the Kalshi case. Either way, New York has positioned itself as a party in interest in both the most important CFTC-registered prediction market legal disputes simultaneously.

Operators mentioned in this article

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Polymarket

USDC-settled on Polygon. Largest prediction market by volume.

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