New York Attorney General Letitia James and Governor Kathy Hochul have filed a lawsuit against Polymarket, alleging the prediction market platform operated without a state gambling license and allowed users under 21 to access its platform. According to the latest reports, the lawsuit was filed against QCX LLC, which does business as Polymarket US, on Thursday. The state is seeking fines, restitution for customers, and forfeiture of gains it claims Polymarket earned illegally. The lawsuit centers on Polymarket's sports contracts, including bets on events like the July baseball game between the Los Angeles Dodgers and New York Mets, which the state views as gambling products requiring New York State Gaming Commission licensing. Governor Kathy Hochul stated the alleged operation had put New Yorkers at risk, particularly younger users who are more vulnerable to problem gambling, while Attorney General James argues unlicensed contracts expose residents to gambling addiction without state-regulated operator protections.
The lawsuit represents a significant challenge to Polymarket's federal regulatory approach, as New York directly targets the company's CFTC-regulated US business that returned in December 2025. According to the latest reports, New York is arguing that a federal license does not automatically allow Polymarket to offer products that the state considers gambling without obtaining a separate state gambling license. This distinction could have broader implications for how prediction markets are regulated across the United States, as the case goes beyond the typical gambling enforcement and challenges the federal-state regulatory divide. The lawsuit seeks to stop Polymarket's New York operations, recover allegedly illegal gains, and compensate affected users, with Attorney General James demanding fines equal to three times the alleged illegal gains. The case adds to a growing fight between prediction markets and state gambling regulators over who has authority to oversee these products.
According to the Financial Times, Polymarket has intensified discussions with European and UK regulators as the prediction market platform seeks financial services oversight for its contracts instead of being regulated primarily under national gambling laws. The New York-based company is holding talks with regulators in London, Brussels and several European Union jurisdictions as it works toward securing a European license. As reported by the Financial Times, people familiar with the discussions said Polymarket wants its contracts treated more like derivatives under financial services rules, arguing that supervision under financial markets rules would provide a more suitable framework than the gambling regimes currently applied to prediction markets in several European countries. The company has stated its commitment to engaging early and openly with policymakers and regulators as it grows its presence and expands globally.
The company is seeking to convince European authorities that its contracts can operate under the Markets in Financial Instruments Directive (MiFID), which sets rules for investment firms and financial instruments across the EU. According to the Financial Times, Polymarket has been engaging with the European Securities and Markets Authority and the European Commission, with discussions extending to individual national regulators. ESMA chair Verena Ross met two U.S.-based members of Polymarket's legal team in June, accompanied by a Paris-based lawyer from A&O Shearman and a Brussels-based lobbyist from Hanbury Strategy. The company also met UK Financial Conduct Authority chief executive Nikhil Rathi the following day. As part of its lobbying drive, Polymarket this month joined the trade association Blockchain For Europe and has started discussions with other European industry groups, according to one person familiar with the matter.
The push for financial regulation faces a fragmented European market where authorities have taken different approaches to event contracts. As reported by the Financial Times, national gambling regulators in countries including France, Germany and Italy have maintained that prediction markets require local gambling licenses, with retail access to many products remaining restricted across Europe. France has already taken direct action against Polymarket, ordering internet providers to restrict access to the platform after treating it as an unauthorized gambling service. Similar action followed elsewhere, with the Czech Ministry of Finance ordering internet service providers to block Polymarket in July after authorities classified the service as an unauthorized internet game. ESMA appears cautious about any relaxation of EU rules, this month warning that prediction markets are rife with insider trading risks.
The regulatory push comes as Polymarket seeks new funding at a valuation above $20 billion. As reported by the Financial Times, the platform has been discussing approximately $1 billion in new funding, with a proposed round led by Donald Trump Jr.'s 1789 Capital valued at $21 billion, with the investment firm planning to contribute roughly $300 million. Polymarket has pursued regulated market access in the United States alongside these investments, with its U.S. operation running through QCX, a Commodity Futures Trading Commission designated contract market. The company has also joined trade group Blockchain For Europe this month and started discussions with other European industry organizations as part of its regulatory engagement strategy.
