New York Sues Polymarket US, Seeks Fines Equal to Three Times Alleged Gains

New York Attorney General Letitia James sued QCX LLC, doing business as Polymarket US, on September 24, accusing the prediction market operator of running an unlicensed gambling business in the state. The attorney general’s office said it is seeking an order blocking unlicensed operations, forfeiture of illegal gains, restitution to users and fines equal to three times the gains Polymarket allegedly made through illegal conduct.

Polymarket responded the same day by moving the state case into federal court and filing its own federal lawsuit against James and New York gaming officials. The removal case is People of the State of New York, by Letitia James v. QCX LLC d/b/a Polymarket US, No. 1:26-cv-08338, in the U.S. District Court for the Southern District of New York. The separate Polymarket complaint is QCX LLC v. James et al., No. 1:26-cv-08345, in the same court.

What is New York accusing Polymarket US of doing?

New York’s petition in New York State Supreme Court alleges that Polymarket US operated without a license from the New York State Gaming Commission while accepting wagers on outcomes outside the bettor’s control. That theory puts the case squarely in the state’s gambling-law frame: if customers stake value on uncertain outcomes they do not control, New York says the activity falls within its gambling statutes.

In a September 24 announcement with Governor Kathy Hochul, James’s office said Polymarket let New Yorkers place wagers on sports, elections and other events without a state gaming license. The attorney general’s release also said the platform allowed users as young as 18 to participate, below New York’s minimum age of 21 for mobile sports wagering.

The requested remedies are broader than a simple shutdown order. James is asking the court to stop Polymarket from operating as an unlicensed gambling business in New York, require forfeiture of alleged illegal gains, order restitution to users and impose fines equal to three times the gains the company allegedly made through unlawful activity. That fine request is the most direct monetary threat in the state case because it scales with alleged gains rather than a fixed penalty.

Polymarket US entered the domestic market through QCX LLC, which the Commodity Futures Trading Commission lists as a designated contract market operating under the assumed name Polymarket US. The CFTC’s designated contract market filing shows QCX LLC d/b/a Polymarket US as designated on July 9, 2025. New York’s lawsuit does not treat that federal exchange status as enough to authorize the challenged activity in the state.

How is Polymarket fighting New York’s case?

Polymarket moved quickly to shift the dispute from Manhattan state court to federal court. In James v. QCX LLC, No. 1:26-cv-08338, the company filed a September 24 notice of removal from New York State Supreme Court, New York County. The federal docket identifies the cause of action as removal under 28 U.S.C. § 1442.

Polymarket also filed QCX LLC v. James et al., No. 1:26-cv-08345, against James and members or officials of the New York State Gaming Commission, including Brian O’Dwyer and Robert Williams. The Justia docket lists the suit as a constitutional challenge to a state statute and identifies the cause of action under the Commodity Exchange Act.

The company’s argument is built around federal preemption. Polymarket says New York cannot use state gambling law to block contracts listed on a federally regulated derivatives exchange. New York’s answer is that federal market status does not give a company permission to operate what the state characterizes as gambling without a state license.

That gives the dispute two tracks. The first is procedural: whether the removed enforcement action stays in federal court and how the separate federal complaint proceeds. The second is substantive: whether the contracts at issue are protected by federal commodities law, subject to New York gambling enforcement, or governed by some mix of federal oversight and state police power.

Why does the Kalshi litigation matter for Polymarket?

Kalshi’s sports-contract litigation matters because the appellate courts are already dividing over the same preemption question. The Polymarket case is not identical, but both fights ask whether state gambling regulators can enforce state law against event-contract businesses that point to CFTC-regulated exchange status.

On September 25, the U.S. Court of Appeals for the Sixth Circuit ruled against Kalshi in KalshiEX LLC v. Schuler, No. 26-3196. The panel held that Kalshi’s sports-event contracts are not swaps under the Commodity Exchange Act and that federal law does not preempt Ohio and Tennessee gambling enforcement. The Sixth Circuit affirmed the denial of preliminary relief in the Ohio case, vacated the Tennessee injunction in Kalshi’s favor and remanded.

The Sixth Circuit’s decision followed the Ninth Circuit’s August 28 ruling in KalshiEX LLC v. Assad, No. 25-7516, a Nevada case. There, the Ninth Circuit held that Kalshi’s sports-event contracts were not swaps under the Commodity Exchange Act and affirmed in part an order dissolving preliminary relief that had shielded Kalshi from Nevada enforcement.

Kalshi has a conflicting win in the Third Circuit. In KalshiEX LLC v. Flaherty, No. 25-1922, decided April 6, the Third Circuit affirmed preliminary relief against New Jersey officials and allowed Kalshi to keep operating sports-related event contracts in that state while the case proceeds. New Jersey then asked the U.S. Supreme Court to review the Third Circuit ruling in Flaherty v. KalshiEX LLC, No. 26-299.

The Polymarket case may turn on a different product mix than the Kalshi sports cases. Polymarket offers markets across politics, economics, culture and sports, and some non-sports contracts may raise different statutory arguments about economic or commercial consequences. The common question remains narrow and consequential: when a state views event contracts as wagers, does federal derivatives regulation block state gambling enforcement?

What happens next in the New York case?

The next fight is where the case belongs. If the Southern District of New York keeps the removed enforcement action, Polymarket will press its Commodity Exchange Act preemption theory in federal court alongside its separate complaint against James and gaming officials. If the case is sent back to state court, New York will litigate its gambling-law claims in the venue where it filed.

The case also lands in a broader New York enforcement campaign against prediction market operators. James’s office has already pursued similar theories against other federally regulated event-contract businesses, and New York’s position is consistent: a federal exchange registration does not automatically override state gambling restrictions when the state treats the activity as wagering.

The next concrete milestone is the Southern District of New York’s handling of Polymarket’s removal in No. 1:26-cv-08338 and its related federal complaint in No. 1:26-cv-08345. Beyond that, the Supreme Court’s response to New Jersey’s petition in Flaherty v. KalshiEX LLC, No. 26-299, could shape how lower courts handle state challenges to event-contract platforms before New York’s claims against Polymarket reach a final ruling.