The New York City Council has initiated an investigation into several prediction market platforms, including Polymarket, Kalshi, Coinbase, and Gemini Titan, due to allegations of deceptive marketing practices and targeting underage users. The probe, led by Council Speaker Julie Menin, signifies a growing regulatory scrutiny of the prediction market industry.
Menin sent letters to the companies on Monday, seeking detailed information about their operations within New York City. The inquiries focus on revenue generated, the number of city residents using the platforms, and the specifics of their marketing strategies. A significant portion of the questions pertains to how these companies ensure compliance with consumer protection laws.
This investigation follows a lawsuit filed by New York Attorney General Letitia James against Kalshi just over a week prior. James alleged that Kalshi was operating an illegal gambling application. While James has targeted Kalshi, she has not yet taken action against Polymarket.
In her correspondence to Polymarket founder and CEO Shayne Coplan, Menin specifically addressed concerns about promotional videos that allegedly depicted fake trades and promoted insider trading on social media. These advertisements may have also targeted minors, according to the speaker. A June report from The Wall Street Journal, which analyzed over 1,100 videos from Polymarket creators, found that 70% utilized dummy sites for filming fake trades.
A spokesperson for Polymarket stated that the company is prepared to engage with the City Council. A Coinbase representative affirmed that the company adheres to all applicable laws. Kalshi has declined to comment, and Gemini Titan has not yet responded.
While the City Council lacks the authority to file criminal charges, it can issue subpoenas to compel companies to produce documents. Menin indicated that the council is considering potential legislation to enhance enforcement, public education, health measures, and fund allocation related to prediction markets, with public hearings planned.
Prediction market companies, including Kalshi, contend that their business model differs from traditional sports gambling, as users trade against each other rather than the platform, similar to an exchange.
Separately, the Commodity Futures Trading Commission (CFTC), which asserts exclusive authority over prediction markets, is challenging James's lawsuit against Kalshi. A CFTC spokesperson stated that the New York Attorney General does not set the rules for national derivatives markets, emphasizing that the CFTC is the congressionally mandated body for such regulation. The CFTC has instructed Kalshi to continue operating normally to maintain market integrity and stability, utilizing its emergency authority in response to the state's complaint.
In July, Kalshi reportedly offered New York authorities a share of its trade revenue as taxes and proposed self-exclusion options for users. Polymarket has recently begun a reorganization of its marketing department, including the hiring of Travis VanderZanden, formerly of Bird, as head of growth.