Polymarket sued the state of New York on Thursday in response to Attorney General Letitia James' earlier lawsuit accusing it of promoting "illegal gambling."

New York Drags Polymarket to Court

The state alleged in its lawsuit that Polymarket's prediction markets constitute gambling, as the outcomes on which users bet are "uncertain" and beyond their "control."

The lawsuit filed in a state court in Manhattan mentioned that Polymarket has not obtained a license from the New York State Gaming Commission, allowing it to evade tax obligations similar to those of "licensed casinos" and "mobile sports gambling platforms."

James asked the court to order Polymarket to forfeit all "illegal gains," pay "restitution" to consumers who were harmed and pay fines equal to three times those profits.

"By skirting New York's laws, Polymarket is targeting the most vulnerable and depriving New York families of critical services and support," James said.

Polymarket's Response

Polymarket filed a countersuit against James and state officials on Thursday evening, Reuters reported, arguing the CFTC has exclusive authority to regulate prediction markets.

Daniel Wallach, a sports betting and gaming lawyer, also reported on X that Polymarket removed James' civil enforcement action from state court to federal court in the Southern District of New York.

Polymarket didn't immediately return MarketDash's request for comment.

The Tussle Heats Up

This lawsuit comes amid a broader debate over the regulation of prediction markets.

Nearly 50 active state lawsuits are targeting CFTC-registered exchanges. Polymarket filed a preemptive federal lawsuit against the state of Massachusetts earlier in February.

The CFTC has firmly defended the agency's "exclusive jurisdiction" over prediction markets, a position backed by President Donald Trump.

Sen. Adam Schiff (D-Calif.) described the CFTC as "completely unequipped" to regulate prediction markets, while accusing its Chair, Mike Selig, of duplicity.