New York Sues Coinbase and Gemini, Seeking To Halt Unlicensed Prediction Market Businesses

An anonymous reader quotes a report from the Associated Press: New York is suing Coinbase and Gemini, two of the newest players in the prediction market industry, arguing that the companies' unregulated and unlicensed platforms are illegal gambling operations. Attorney General Letitia James' lawsuit, filed Tuesday in state court in Manhattan, seeks to bar the companies' platforms from operating in the state unless and until they obtain licenses from the state Gaming Commission.

"Gambling by another name is still gambling, and it is not exempt from regulation under our state laws and Constitution," James said in a statement. "Gemini and Coinbase's so-called prediction markets are just illegal gambling operations, exposing young people to addictive platforms that lack the necessary guardrails." Both companies began as cryptocurrency trading platforms before branching into the prediction space, which has been dominated by Kalshi and Polymarket.

[...] New York's lawsuit alleges that the Coinbase and Gemini are seeking "to avoid the legal and financial consequences" of the state's close regulation of gambling "by offering what is quintessentially wagering under the guise of offering 'event contracts' on a 'prediction market.'" By operating without licenses, the lawsuit says, Coinbase's and Gemini's prediction market businesses aren't paying the same taxes as licensed casinos and mobile sportsbooks, which are taxed by the state at a rate of approximately 51% of gross revenues. In addition, the lawsuit says, Coinbase and Gemini allow users as young as 18, while state law prohibits wagering by anyone under 21.

Betcha

[BranMan]

Betcha I get first post!

Re:

[crunchy_one]

Frosty!

Re:

[rsilvergun]

BranMan getting first post cost me $200,000 but I also bet crunchy_one would reply with the word Frosty so I broke even!

Isn't it fun turning absolutely everything into gambling!

Re:

[BranMan]

Seriously though, this is something of a gray area:

"Yes, states can regulate areas already regulated by the federal government, provided the state regulation does not conflict with federal law. Under the Constitutionâ(TM)s Supremacy Clause, federal law takes precedence, but states often share concurrent powers (e.g., taxation) or set stricter standards than the federal minimum.

Key points on state vs. federal regulation:
1) Preemption: If a federal law conflicts with a state law, the federal law override

The only gray area is the president's son

[rsilvergun]

This is transparently and obviously gambling and the supreme Court ruled that is regulated at the state level which is what opened up the floodgates for sports betting.

Companies didn't like that because they wanted to be able to fleece customers in states that keep gambling illegal, so they did the classic renaming trick that Uber did, we're not a taxi company we're in app! Or in this case we aren't an illegal gambling ring we are commodities traders.

In a sane civilization a judge would look at this

It's A Casino

[SlashbotAgent]

It's gambling. It's a casino.

Stop calling it anything and everything other than what it is.

Re:

[The-Ixian]

Yeah, I am not really sure how "because it's done on your phone" is a somehow an exemption to existing anti-gambling law, but I felt the same way about ride sharing apparently not being a taxi service too.

Re:

[hdyoung]

Yeah, I'm not sure how to feel about this gray-zone stuff. I like consistency and rules are generally meant to be followed.

But, ride-sharing is one of those sketchy rule-breaking situations that led to something that was really needed - a shakeup in the taxi industry, which had been so locked down by laws and regulations that innovation was completely strangled. It's pretty clear that Uber's rule/tradition/law-breaking ultimately made the "hiring a driver" thing much better for nearly everyone.

I'm no

Re:

[ArchieBunker]

Any specific laws or what you heard from the librul media?

Unlicensed?

[nospam007]

I use the unlicensed predictions of Madame Fortuna of the local Carnival to invest all my money.

Already Litigated

[SmaryJerry]

This has already been litigated all over the country if these companies have the same license as Kalshi and Polymarket. Prediction markets are not gambling because 1. There is no house edge. 2. There is a marketplace. 3. Contracts/Shares/Bets behave exactly the same as any non gambling contract.

Re:

[whitroth]

Yeah, both of which have been used to fleece sucker by using inside information from the Oval Office to "bet".

Re:

[Anonymous Coward]

Prediction markets are gambling because 1. they are gambling 2. they are gambling 3. they are gambling!

Re:Already Litigated

[eepok]

Ok, I'll do it. Bullshit!

1. There is no house edge.

Not a requirement for any legal definition of gambling and even if it were, any brain-dead lawyer would point to the 100% chance of revenue the house receives in the form of transaction fees.

2. There is a marketplace.

Does not preclude something from being gambling. The market aspect is literally just enhanced "straw betting".

3. Contracts/Shares/Bets behave exactly the same as any non gambling contract.

So what? You can sell milk as a commodity, but that doesn't stop the milk from being milk.

Here's the federal definition of Bet or Wager for reference: https://www.law.cornell.edu/us... [cornell.edu]

(A) means the staking or risking by any person of something of value upon the outcome of a contest of others, a sporting event, or a game subject to chance, upon an agreement or understanding that the person or another person will receive something of value in the event of a certain outcome;
(B) includes the purchase of a chance or opportunity to win a lottery or other prize (which opportunity to win is predominantly subject to chance);
(C) includes any scheme of a type described in section 3702 of title 28;
(D) includes any instructions or information pertaining to the establishment or movement of funds by the bettor or customer in, to, or from an account with the business of betting or wagering; and

Below that it goes on to say that "playing a market" isn't gambling, but it doesn't in any way imply that including a market "de-gambles" the gambling. Everything that comes from an illegal action is itself prohibited.

If finally proven to just 'be gambling'..

[Fly Swatter]

Then they should be forced to unwind all prediction transactions retroactively and shut down.

It was always gambling under a new name, and does not pass the sniff test. You can put lipstick on a pig...

The classical business model

[SoftwareArtist]

It's the classic business model of the internet age.

1. Start a ____ company.
2. Ignore all laws and regulations ____ companies are supposed to follow.
3. Profit!

It's the same model pioneered by Uber (just an app, not a taxi company!), Airbnb (just a website, not renting accomodations!), and countless others.

Trading Options

[sc0t]

.. Boy, wait until the State of New York finds out about Call and Put options, Binary / OTM market play. Better shut down the stock market, it would appear to be gambling !

John Oliver Segment

[Himmy32]

John Oliver had a recent segment on prediction markets [youtube.com] that had some insightful thoughts on the game that prediction markets are playing in marketing their services as betting and winning money to consumers, but promising that it's hedging and financial instruments to regulators.

And a standard notice, it's John Oliver who is pretty open their political bias. So there are some comments on how Don Jr is a "special advisor" for Polymarket. But most of the segment is pretty insightful regardless of political leaning.

My unlicensed prediction

[sinij]

You can't stop internet-based technology by mandating licensing, they will move HQ and people will use VPNs.

ProTip: Licensing prediction markets does not fix

[jsepeta]

ProTip: Licensing prediction markets does not fix the problem of them being open to manipulation and vehicles for money-laundering, aside from ethical and moral aspects.

It's also corruption-as-a-service

[Arrogant-Bastard]

Disclosure first: I'm on the boards of two non-profit organizations, and previously served on the board of another one. Because of that, I'm required by (US) law to sign an annual conflict-of-interest statement. I'm also required to recuse myself from any vote that would materially benefit myself. I'm required to do all kinds of other things, like exercise fiduciary responsibility and to ensure that we are in compliance with all federal and state laws and regulations, and so on. All of this exists because other people have done pretty much the opposite and have thus committed malfeasance, fraud, embezzlement, etc. So as tedious and repetitive as it is: I get it. It needs to exist. And I need to do my part.

But prediction markets give me a way completely bypass all of it, do whatever I want, and enrich myself at the expense of these organizations with no accountability. Which I'm not doing, by the way, because my heart is in these organizations. And I hate the assholes at Kalshi and Polymarket, and I don't want their dirty money.

But other people are doing it: individuals, people in corporations, people in organizations, people in government. It's that last one that should get everybody's attention, because people in government tend to wield far more power than anybody else. (We can have a debate about billionaires and corporate executives vs. mayors and cabinet officials if you like, but when push comes to shove, the former don't have control of police or military forces...and when push does come to shove, that matters.) The existence of these markets means that anyone who wields enough power to make something notable happen or not happen can profit from it, perhaps profit a great deal. Which is why there were bets (yes, they're bets, and yes, this is gambling) made on the Iran war: the bettors rigged the game. Either they were the people making the decisions or they were in the room with the people making the decisions; either way, this is horrifying.

The existence of these operations is incompatible with a functioning system of government. They are explicitly designed to manufacture corruption, as much as a hammer is designed to pound nails. And as new as they are, they're already doing it: they're profiting from damaging the machinery that keeps the country running. (And if you're going to observe that "running" is doing some work in that sentence: yes, I know. There are problems, there have always been problems, there always will be problems. But throwing a huge wrench in the machinery isn't going to fix those.)

These companies don't need to be regulated: they need to be shut down, and then criminally investigated.

CFTC is in charge

[NotEmmanuelGoldstein]

The federal government already decided that these online casinos are selling contracts, not taking bets: So, only the federal government can regulate them. One US court has already quashed an attempt to impose state laws upon these casinos. Why does NY state think they can behave like a corporation and strike-down a federal ruling?

Re:

[Fly Swatter]

The plan (my guess) is to keep litigating until an appeal is reached to the supreme court so that that stupid federal precedent can be overturned. This is a gambling establishment and no one can persuade me otherwise.

- Quacking like a duck and all that.

Did anyone win the "SPLC indicted by May 1st" bet?

[FarField12]

I wonder if inside information was used? Oh well, at least it came out.