New York sues Polymarket's US exchange as an illegal gambling operation, and Polymarket sues New York back the same day

What happened

Attorney General Letitia James and Governor Kathy Hochul announced on 24 September 2026 a suit against QCX LLC, which trades as Polymarket US, for "running an illegal gambling operation in New York through its prediction market platform". The verified petition, brought under section 63(12) of the Executive Law in the Supreme Court of the State of New York, New York County, alleges unlicensed gambling under the Penal Law, unlicensed sports wagering under the Racing Law and a breach of the federal Wire Act. It asks for an injunction, an accounting of bets placed and customer losses, restitution and disgorgement, "a penalty of three times the amount of Respondent's gain from the illegal practices alleged herein", and a penalty of $100,000 "for each offer or attempt to offer sports wagering or mobile sports wagering in New York without authorization". It cites Polymarket's posts on X, among them one of 17 August 2025 reading "BAD NEWS (For sportsbooks): Polymarket is coming home to the US". The same day Polymarket US filed its own complaint in the Southern District of New York, No. 1:26-cv-08345, against the Attorney General and the members and executive director of the State Gaming Commission. It says it "operates a lawful, nationwide designated contract market subject to the exclusive jurisdiction of the Commodity Futures Trading Commission", and calls New York's position "an extraordinary assertion of state power squarely foreclosed by federal law". CNBC reports that Polymarket also moved the state's suit from the state court in Manhattan to the federal court; that notice was not among the documents read for this story.

Why it matters

The two filings are one argument in two courts, and each leaves out the other side's best authority. The state's petition runs to 33 pages and never mentions the CFTC, the Commodity Exchange Act or preemption; it treats the contracts as bets and nothing else. Polymarket's complaint rests on the Third Circuit, quoting Flaherty that "the text of the Act preempts otherwise applicable state laws that purport to regulate . . . event contracts on CFTC-licensed [contract markets]", and does not mention the Ninth Circuit's contrary ruling of 28 August. A day later the Sixth Circuit sided with the Ninth. So the complaint was filed with the appeals courts split one each way, and it now stands on the losing side of two to one. New York has now used the same theory against four federally registered venues. The complaint says the state has pursued "three other CFTC-regulated entities that offer event contracts", and the release lists the suits: Kalshi in July, and Coinbase and Gemini in April. Two of the four are crypto exchanges, so a state gambling statute has become one of the tests any crypto venue adding event contracts must pass, whatever its federal registration.

What is not settled

The size of the claim cannot be worked out from the documents. The relief is stated as a multiple of gains and a sum per offer rather than a total, and the two figures the petition gives for scale, a valuation above $20bn for the business with its parents and affiliates and annualised revenue "well over $1 billion", are each introduced with "reportedly". The petition is also inconsistent with itself on the per-offer penalty, writing "each offer or attempt" in one paragraph and "each offering or attempt" in another. Which court hears the state's suit depends on the removal CNBC reports; the complaint cites New York's Kalshi petition under a Southern District docket, 1:26-cv-06550, so that case took the same route. Polymarket's side of the dispute outside its complaint rests on reports: CNBC quotes its chief legal officer, Neal Kumar, calling the suit "copy/paste", and Al Jazeera, reporting with Reuters, quotes him saying the state officials "preferred the media hit". Neither statement was found on a page Polymarket controls.