Coinbase Moves New York AG Lawsuit to Federal Court Over Prediction Markets

• Coinbase moves lawsuit to federal court, citing CFTC oversight of prediction markets.
• Attorney General alleges that Coinbase and Gemini ran unlicensed gambling platforms.
• They seek fines, profit forfeiture, and restitution over alleged illegal operations.

Coinbase has escalated its legal response to a lawsuit filed by New York Attorney General Letitia James by transferring the case to federal court, arguing that the dispute centers on federal law governing prediction markets.

The company, through its Chief Legal Officer, Paul Grewal, stated that New York’s claims raise substantial federal law questions and are completely preempted, making federal jurisdiction appropriate.

The case is now proceeding in New York federal court, where Coinbase argues that prediction markets operate as federally regulated exchanges overseen by the Commodity Futures Trading Commission (CFTC).

According to Coinbase, prediction markets are structured as national exchanges registered with the CFTC, thereby placing them under federal regulatory authority. The company cited provisions under U.S. law to justify removing the case from state court, including federal-officer removal statutes.

Grewal added that Coinbase intends to continue defending what it describes as Congress’s intended framework for federal oversight of these markets.

In the complaint, Attorney General James claims that Coinbase and Gemini offer prediction market products that allow users to place bets on outcomes such as sports events, elections, and entertainment results. The lawsuit states that these activities meet the legal definition of gambling under New York law because outcomes are uncertain and outside the control of participants.

In addition, the state investigators allege that both companies failed to secure licenses from the New York State Gaming Commission, which is required for legal gambling operations. The complaint also notes that these platforms were accessible to users aged 18 to 20, despite state rules requiring participants in mobile sports betting to be at least 21.

The Attorney General’s Office is seeking multiple remedies, including fines, forfeiture of alleged illegal profits, and restitution for affected users. The lawsuit further claims that the platforms bypassed tax obligations tied to licensed gambling operations, which usually fund public programs such as education and gambling treatment initiatives.

Additional allegations include violations related to betting on games involving New York college teams, which is prohibited under state law. The Attorney General cited concerns about financial and personal risks, referencing studies linking early gambling exposure to mental health challenges.

Related: CFTC Moves to Block Arizona’s Action Against Prediction Markets