Coinbase removes NY AG prediction markets lawsuit to federal court, escalating legal battle

Coinbase’s chief legal officer, Paul Grewal, said Wednesday that the company had removed New York Attorney General Letitia James’ prediction markets lawsuit from state court to federal court, arguing that the case turns on disputed questions of federal law over how event contracts are regulated.

The move escalates a legal fight that could help define whether prediction markets fall under federal commodities regulation and the scope of the US Commodities and Futures Trading Commission’s (CFTC) or state gambling laws, with broader implications for the oversight of platforms like Coinbase and Gemini.

“We have removed this action to federal court,” wrote Grewal in a Wednesday X post, adding that New York’s claims raise “disputed and substantial questions of federal law” and are subject to “complete preemption.”

It comes in response to a Tuesday lawsuit filed by New York’s Attorney General Letitia James against Coinbase Financial Markets and Gemini Titan, alleging their prediction market offerings violate New York gambling law by allowing users to bet on sports, entertainment and elections without a state gaming license, including users between 18 and 20 years old.

Related: Kalshi, Polymarket face trading halt in Nevada after court rulings

The lawsuit seeks fines, forfeiture of alleged illegal profits and restitution for customers, while also asking the court to stop the companies from offering similar products in New York without complying with state law.

State regulators battle for prediction markets jurisdiction

State regulators have stepped up pressure on prediction market platforms in recent months, with 11 states having pursued legal action against them, seeking to assert control over federal regulators.

Coinbase’s Grewal said in a Tuesday X post that prediction markets are “federally regulated national exchanges” under the CFTC and the company will continue to “fight for the federal oversight of these markets that Congress intended.”

Coinbase launched prediction markets across 50 US states, including New York, on Jan. 28, offering trades on “any real-world outcomes” across sports, politics, culture and more.

The New York Attorney General’s lawsuit is the latest sign that state regulators are seeking to assert their jurisdiction over emerging prediction markets, contradicting the CFTC’s stance, which said it has exclusive jurisdiction over prediction markets registered as designated contract markets, such as Polymarket and Kalshi.

On April 2, the CFTC filed three separate lawsuits against the gaming regulators of Illinois, Connecticut and Arizona, arguing that those states could not apply their gambling laws and licensing requirements to event contracts listed on CFTC-regulated platforms.

On April 8, the CFTC and US Department of Justice (DoJ) asked a federal court to block Arizona from enforcing state gambling law against Kalshi’s event contracts, arguing that they fall under the CFTC’s exclusive authority.