NYC Council probes 4 prediction markets as CFTC, New York clash

The New York City Council has opened an investigation into four prediction-market platforms over alleged deceptive marketing and targeting of minors.

The New York City Council is investigating Polymarket, Kalshi, Coinbase and Gemini Titan over alleged deceptive marketing and targeting of minors, opening a new front in the state-by-state legal fight over prediction-market regulation.

"Troubling news reports allege that Polymarket conspired with marketing agents and social media influencers to target young adults — and thus potentially minors — with false, deceptive, and unconscionable advertising," Julie Menin, speaker of the New York City Council, wrote in an Aug. 11 letter to Polymarket founder and Chief Executive Shayne Coplan.

Menin posed more than 60 questions about how much the companies earn in New York, how many users are city residents and how their marketing operations work, giving them 14 days to respond. The letters follow a Wall Street Journal analysis of more than 1,100 videos made by Polymarket creators that found 70 percent featured dummy sites the company used to film fake trades. Polymarket has since restructured its marketing team, hiring Travis VanderZanden, founder of e-scooter company Bird, as head of growth.

While the council cannot bring criminal charges, it can issue subpoenas forcing the companies to turn over documents — authority it has rarely used on a private firm. Menin said the council is considering legislation authorizing increased enforcement, public education campaigns and health measures, and intends to hold public hearings.

CFTC vs. New York

The investigation lands as the Commodity Futures Trading Commission and New York Attorney General Letitia James clash over who regulates the sector. James sued Kalshi on July 31, accusing the company of illegally operating a gambling app and seeking at least $36 billion in civil penalties. On Aug. 11, the CFTC invoked emergency authority ordering Kalshi to continue operating in New York.

"Congress did not intend for derivatives exchanges to be regulated under a patchwork of state gaming laws," CFTC Chairman Mike Selig said. "New York has no business regulating these interstate financial markets." Commissioner Caroline D. Pham added that the commission is obligated under the law to maintain order in the market.

New York Gov. Kathy Hochul has attacked Kalshi's bet-on-almost-everything model, arguing markets for whether drug trials succeed are akin to wagering on death. "Turning cancer patients into a prop bet is one of them," she said in an Aug. 5 post on X. Kalshi co-founder Luana Lopes Lara responded: "This is flat out a lie."

What's at stake

The CFTC has sued several states — including New York, Illinois, Arizona and Connecticut — over the past year as it seeks exclusive jurisdiction over federally registered prediction markets. In the Senate, lawmakers are pushing to add language to the Clarity Act crypto bill that would preserve state authority over sports betting and keep prediction markets out of that area.

Kalshi and other prediction markets argue their model differs from sports gambling because users trade against each other rather than against a house, more like an exchange. "States can't just shut down a federally licensed exchange," Kalshi spokeswoman Elisabeth Diana said. Polymarket said it is "committed to maintaining accurate, fair, and transparent markets" and would audit its promotional content. Coinbase said it "fully complies with applicable laws."

The outcome could set a precedent for the entire prediction-market industry, which has expanded rapidly and is valued in the billions of dollars. Kalshi had earlier offered New York a share of its trade revenue in taxes and volunteered to let users exclude themselves from the app, but the state pressed ahead with its lawsuit. A hearing before the council is planned, and the companies have until late August to respond.

This article is for informational purposes only and does not constitute investment advice.