New York state filed suit against Polymarket on Sept. 24, alleging that the prediction market is running an illegal gambling operation. Polymarket countersued the state on the same day.

The legal action follows similar lawsuits, filed by New York Attorney General Letitia James earlier this year, against other prediction markets, including Kalshi, Coinbase, and Gemini Titan.

James is asking a New York trial court to stop Polymarket from operating in the state and make it “pay fines, forfeit all illegal gains, and pay restitution to users,” a statement from her office reads.

New York Gov. Kathy Hochul said in a statement: “By running an unlicensed gambling operation, Polymarket has done more than just knowingly violate state law, they have put New Yorkers at risk, especially those underage who are most vulnerable to problem gaming.”

Polymarket responded by moving the suit to a federal court in the Southern District of New York and filing its own suit against James and other state officials, saying it has a federal right to operate nationwide.

“Defendants have asserted that federally regulated event-contract trading is ‘unregulated gambling,’” Polymarket said in its suit. “This is an extraordinary assertion of state power squarely foreclosed by federal law.”

Polymarket launched its U.S.-dedicated platform in December 2025, initially offering sports betting. It has since expanded to allow wagers on just about anything, from who will win the 2026 Nobel Peace Prize to who will be named Person of the Year by Time magazine.

The company rakes in more than $1 billion in annual revenue, New York’s lawsuit states.

Polymarket has not given the state its cut of those profits, by “sidestepping its obligation to pay taxes like licensed casinos and mobile sports gambling platforms do,” the attorney general’s statement reads.

“This tax revenue from gambling regulation funds public schools, sports programs for underserved youth, and problem gambling education and treatment,” it states.

Polymarket said it was willing to discuss the issue with New York.

“We chose to engage with them directly on the substance and address their concerns,” Polymarket chief legal officer Neal ​Kumar said in a statement. “They preferred the media hit. Any time the [attorney general’s] office wants to swing by, our door is open for a ​conversation about how we protect consumers and offer fair, transparent and legal markets.”

In January, James also filed suit against video game developer Valve, alleging that it promotes gambling to children and teenagers. Its most popular games, “Counter-Strike 2,” “Dota 2,” and “Team Fortress 2,” allow kids to use real money to purchase in-game “mystery boxes,” which grant random rewards when opened.  

The rewards are purely cosmetic, but they are regarded as collectibles, and there is a lucrative real-world market for them.  

Valve responded by comparing those in-game mechanics to kids buying packs of baseball cards. 

“People enjoy surprises,” the company said in its motion to dismiss the suit. “And while there is an element of randomness in opening a baseball card pack that includes a one-of-a-kind Aaron Judge rookie card, no legislature or court has ever deemed that act illegal gambling.”

Reuters contributed to this report.