On 24 September 2026, the New York Attorney General filed a verified petition in Supreme Court, New York County, against QCX LLC, which does business as Polymarket US. According to the petition, QCX LLC operates an exchange where users buy "Yes" or "No" contracts that pay $1.00 if a stated sports, election or entertainment outcome occurs. The petition proceeds under Executive Law § 63(12). It pleads eight predicates of illegality drawn from the New York Constitution, the Penal Law, the Racing, Pari-Mutuel Wagering and Breeding Law (Racing Law) and the federal Wire Act. It seeks an injunction, an accounting, restitution, disgorgement, damages, penalties and costs.
Summary
- Executive Law § 63(12) lets the Attorney General seek an injunction, restitution and damages against "repeated" illegal acts or "persistent fraud or illegality" in business. The statute defines "repeated" to include conduct that affects more than one person. The petition alleges sports listings since December 2025 and trades by New York accounts in July and August 2026, which meets those terms if any pleaded predicate is a violation of law.
- The Penal Law counts are the State's strongest predicates. A trader who pays for a contract that returns $1.00 if the Mets win stakes value on "a future contingent event not under his control or influence" (Penal Law § 225.00[2]). The contested element is "unlawful," defined as "not specifically authorized by law" (Penal Law § 225.00[12]). Polymarket can be expected to argue that its CFTC designation and self-certified listings supply that authorization. The CFTC staff no-action letter issued to QCX LLC states no conclusion about the contracts' legality (CFTC Letter No. 25-48, at 5–6).
- The Racing Law counts reach only the sports contracts. Racing Law § 1367(16)(a) caps the civil penalty at $100,000 per violation and $5,000,000 per transaction or occurrence, a limit the prayer for relief does not mention. The under-21 and New York college-team rules in Racing Law § 1367-a(4) bind licensees. Racing Law § 1367(1)(s) also excludes collegiate tournaments from the "prohibited sports event" category.
- The constitutional count adds no independent force. White v Cuomo (38 NY3d 209 [2022]) defines the "gambling" that article I, § 9 forbids. That provision limits what the State may authorize and directs the Legislature to act. No decision has been identified that treats a private operator's conduct as a direct constitutional violation for § 63(12) purposes.
- Preemption decides the case, and the federal appellate courts are divided. A divided Third Circuit panel held that sports event contracts on a designated contract market are likely "swaps" within the CFTC's exclusive jurisdiction (KalshiEX, LLC v Flaherty, 172 F4th 220 [3d Cir 2026]). The Ninth Circuit held that they are likely not swaps and that 17 CFR 40.11(a) bars listing gaming contracts (KalshiEX, LLC v Assad, No. 25-7516 [9th Cir Aug. 28, 2026]); press reports state that Kalshi has sought rehearing en banc. Motions panels of the Sixth Circuit and, according to press reports, the Tenth Circuit have denied Kalshi injunctions pending appeal.
- The Southern District of New York rejected preemption for Kalshi's sports contracts in KalshiEX LLC v Williams (No. 25 Civ. 8846 [SD NY July 7, 2026, amended July 13, 2026]). It later denied Kalshi an injunction pending its appeal to the Second Circuit (No. 26-1835). Lower federal rulings on federal questions persuade New York courts but do not bind them (People v Kin Kan, 78 NY2d 54, 59–60 [1991]). On current authority, a court sitting in New York is more likely to reject preemption for sports contracts than to accept it. Supreme Court review of Flaherty (No. 26-299) could reverse that assessment.
- The Wire Act count is the weakest merits predicate and the only pleaded claim with a federal element. It makes a violation of 18 USC § 1084(a) an element of a state-law claim, which supports an argument for federal jurisdiction under Gunn v Minton (568 US 251, 258 [2013]); the other seven counts rest on state law alone. In March 2026 a federal court in Nevada remanded a parallel state enforcement action against Polymarket after rejecting its federal-officer and federal-question grounds for removal.
- Part of the monetary demand lacks a clear civil basis. Penal Law § 80.10 fixes a corporate fine as a sentence on conviction, so the requested treble-gain penalty does not fit a civil § 63(12) proceeding. Disgorgement is available in principle (People v Greenberg, 27 NY3d 490, 497–498 [2016]). A divided First Department vacated a § 63(12) disgorgement award of nearly half a billion dollars in People v Trump (2025 NY Slip Op 04756 [1st Dept 2025]); press reports state that the Attorney General's further appeal is pending.
Removal to the Southern District of New York and the remand question
The forum is unsettled. The Wire Act count is the only pleaded claim with a federal element, and Polymarket's other removal theories have already failed in a parallel Nevada case. Press reports, including a DeFi Rate report of 24 September 2026, state that Polymarket filed a notice of removal that day under No. 1:26-cv-08338. Other press reports state that QCX LLC filed its own federal action the same evening against the Attorney General and Gaming Commission officials, asserting preemption. Neither federal docket has been independently confirmed. Removal takes effect when the defendant files a copy of the notice with the state court clerk, and "the State court shall proceed no further unless and until the case is remanded" (28 USC § 1446[d]).
A claim created by state law arises under federal law only when the federal issue is "(1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress" (Gunn v Minton, 568 US 251, 258 [2013]). A federal defense does not qualify. Arising-under jurisdiction cannot rest on a federal question that appears only in an answer or in a complaint's reply to an anticipated defense (State of New York v Citibank, N.A., 537 F Supp 1192, 1196 [SD NY 1982]). Preemption under the CEA is Polymarket's defense to the seven state-law counts, so those counts cannot support removal on their own.
The eighth cause of action differs in form. It alleges that Polymarket violated 18 USC § 1084(a) and that the violation supplies the illegality that § 63(12) requires (petition ¶¶ 141–145). In Citibank, the court denied the Attorney General's remand motion for § 63(12) causes of action resting on violations of a federal statute. It reasoned that those claims required construction of the federal statute (537 F Supp at 1196–1198). That decision predates the four-part test restated in Gunn. On the eighth count, the Wire Act question is necessarily raised and actually disputed. A remand motion would therefore turn on substantiality and on the federal-state balance.
The Attorney General's best answer on those two factors is practical. The same conduct is pleaded under seven state predicates, and a state court's civil reading of § 1084(a) would not bind any federal prosecution. That answer is an inference from the Gunn factors; no decision applying Gunn to a Wire Act predicate under § 63(12) has been identified.
Polymarket's removal of the Nevada Gaming Control Board's enforcement action shows the other grounds it is likely to assert. QCX LLC and its affiliates removed that action on two grounds (State of Nevada ex rel. Nevada Gaming Control Bd. v Blockratize Inc., No. 3:26-cv-00089-MMD-CLB, ECF No. 41, at 1, 3 [D Nev Mar. 2, 2026]). One was the federal-officer removal statute, 28 USC § 1442(a)(1); the other was that Nevada's claims necessarily raised a substantial federal question (id. at 3). The court remanded. It held that self-certifying contracts and setting access requirements for the exchange amount to compliance with CFTC regulation and do not satisfy the statute's "acting under" requirement (id. at 3–6). It treated Polymarket's argument that Nevada could not regulate a federally designated exchange as a preemption defense that cannot support removal (id. at 8–9), and it denied a stay pending appeal on 12 March 2026 (id., ECF No. 53). That ruling is persuasive only here, and no Second Circuit decision applying § 1442(a)(1) to a designated contract market has been identified. Because federal-officer removal does not depend on the petition's contents, Polymarket may invoke it even though the Wire Act count is the only federal element the petition itself supplies.
If the federal court keeps the Wire Act count, the state-law counts may stay with it as related claims. The Citibank court deferred that question for the one purely state-law count before it (537 F Supp at 1198). A public litigation tracker reports that the Attorney General moved to remand its earlier removed petitions against Coinbase Financial Markets, Inc. and Gemini Titan, LLC, and that those motions were undecided on 22 September 2026. The remand papers in those matters have not been independently confirmed. Until a remand order issues, the state court cannot act, and any preliminary relief would have to come from the federal court.
Executive Law § 63(12) and the illegality predicates
Section 63(12) supplies the Attorney General's standing and remedies; the pleaded predicates decide whether the contracts are lawful. The statute authorizes an application "for an order enjoining the continuance of such business activity or of any fraudulent or illegal acts, directing restitution and damages" (Executive Law § 63[12]). The respondent must engage "in repeated fraudulent or illegal acts or otherwise demonstrate persistent fraud or illegality in the carrying on, conducting or transaction of business" (id.). "Repeated" includes "conduct which affects more than one person," and "persistent fraud" or "illegality" includes "continuance or carrying on of any fraudulent or illegal act or conduct" (id.).
The petition's allegations, if proved, satisfy the business and repetition elements. The petition alleges that Polymarket charges a fee on each trade (petition ¶¶ 46, 59). It alleges sports listings since at least 3 December 2025 (petition ¶ 47) and trades by New York accounts on 6 July, 7 August and 27 August 2026 (petition ¶¶ 63, 65, 70). The open question is whether any of the eight predicates is an "illegal act."
Section 63(12) uses the word "illegal" without limiting the source of law. The Attorney General has pleaded federal statutory violations as § 63(12) predicates before (Citibank, 537 F Supp at 1194–1195). A permanent injunction under § 63(12) requires a reasonable likelihood of a continuing violation, judged on the totality of the circumstances, without proof of irreparable harm (People v Greenberg, 27 NY3d 490, 496–497 [2016]). The alleged listings continued through late August 2026, which would meet that standard if the listings are unlawful.
Whether the contracts are gambling under Penal Law article 225
The sports contracts fit the Penal Law definition of gambling. Whether they are "unlawful" gambling turns on the same federal question that controls preemption. A person gambles "when he stakes or risks something of value upon the outcome of a contest of chance or a future contingent event not under his control or influence, upon an agreement or understanding that he will receive something of value in the event of a certain outcome" (Penal Law § 225.00[2]). The two limbs are alternatives, and the "future contingent event" limb does not require that chance predominate over skill.
The petition alleges a trade by a New York account on 6 July 2026. The account paid $3.01, including $0.10 in fees, for 6.39 contracts on the Mets to beat the Braves (petition ¶ 63). When the Mets won, the account received $6.39 (id.). The trader staked money on a game result outside the trader's control. The terms paid a fixed sum on one outcome and nothing on the other. That structure satisfies each element of § 225.00(2) on its face. The Ninth Circuit described Kalshi's comparable fixed-payout sports contracts as sports gambling in substance, whatever the label (Assad, slip op at 27–28). That ruling is persuasive only.
Polymarket's structural arguments do not fit this definition. The exchange will say that it is not the counterparty, that users trade against each other and that it earns fees instead of winning bettors' losses. Section 225.00(2) defines gambling by the bettor's stake and the contingency. It says nothing about the identity of the opposing party. The Ninth Circuit rejected the same counterparty distinction as irrelevant to whether a sports contract is a bet (Assad, slip op at 29–30). Exchange structure matters more to the bookmaking element of Penal Law § 225.10.
The decisive element is "unlawful," which means "not specifically authorized by law" (Penal Law § 225.00[12]). Polymarket can be expected to argue that federal law supplies that authorization. The CFTC designated QCX LLC as a contract market on 9 July 2025. A designated contract market may list a new contract by filing a self-certification (7 USC § 7a-2[c][1]). The Third Circuit treated self-certified sports contracts as "presumptively approved under federal law" (Flaherty, slip op at 7). In Williams, the Southern District of New York held that self-certification "is not tantamount to a declaration that the contract is lawful" (Williams, slip op at 18). The Ninth Circuit held that 17 CFR 40.11(a) forbids listing contracts that involve gaming, so Kalshi's self-certification and listing of its sports contracts were unlawful under that rule (Assad, slip op at 33–36).
A New York court would therefore decide whether a designation plus an unreviewed self-certification is "specific" authorization. The word "specifically" favors the State. A designated contract market lists self-certified contracts without prior CFTC approval of the particular contract (Williams, slip op at 3, 18). The CFTC staff no-action letter covering QCX LLC's fully collateralized contracts states no conclusion about their legality and does not address 7 USC § 7a-2(c)(5)(C) or 17 CFR 40.11 (CFTC Letter No. 25-48, at 5–6 & n 32 [11 December 2025]). The inference is defeasible. If the Supreme Court adopts Flaherty's reading, a court could treat federal listing authority as the specific authorization that § 225.00(12) contemplates. The Penal Law counts would then fail on that element without any preemption holding.
Election and entertainment contracts stand on different ground. The "New York Governor Election Winner" contract and the Big Brother contract (petition ¶¶ 64–66) fit the "future contingent event" limb. The Racing Law does not reach them. The Ninth Circuit remanded Kalshi's election contracts without deciding their status (Assad, slip op at 41 n 7). No decision has been identified on whether New York gambling law reaches election or entertainment contracts listed on a designated contract market.
Promoting gambling under Penal Law §§ 225.05 and 225.10
If the contracts are unlawful gambling, the second-degree count is strong. The first-degree count depends on an unresolved fact about who accepts the bets. Promoting gambling in the second degree requires that a person "knowingly advances or profits from unlawful gambling activity" (Penal Law § 225.05). A person advances gambling activity when, acting other than as a player, the person "engages in conduct which materially aids any form of gambling activity" (Penal Law § 225.00[4]). The listed conduct includes creating the scheme, soliciting participants, conducting its playing phases and arranging "its financial or recording phases" (id.).
The petition alleges that Polymarket operates the platform (petition ¶ 52), advertised sports trading (petition ¶¶ 34–35) and charged a fee on each trade (petition ¶ 59). It also alleges sign-up credits, referral rewards, trade confirmations and settlement records (petition ¶¶ 36–37, 73–74). Each allegation describes conduct listed in § 225.00(4). The "player" exception excludes anyone who receives profit other than personal gambling winnings (Penal Law § 225.00[3]). It therefore does not protect a fee-earning operator.
Knowledge is contestable in one respect. Polymarket knows what it lists and to whom. Its advertising that it is "legal in all 50 states" (petition ¶¶ 6, 33) is consistent with a belief in legality. Polymarket may invoke that belief if § 225.05 requires knowledge that the activity was unlawful. No decision has been identified that resolves that question for an operator relying on a federal registration. Two records show notice of the legal risk. Polymarket sued Michigan officials on 4 March 2026, seeking to bar anticipated state enforcement against it (QCX LLC v Nessel, No. 1:26-cv-00710 [WD Mich]). A CFTC staff letter of 30 September 2025 cautioned designated contract markets to plan for state enforcement (described in Assad, slip op at 46).
Promoting gambling in the first degree adds a bookmaking threshold. The person must advance or profit from unlawful gambling "by . . . [e]ngaging in bookmaking to the extent that he receives or accepts in any one day more than five bets totaling more than five thousand dollars" (Penal Law § 225.10[1]). Bookmaking means "advancing gambling activity by unlawfully accepting bets from members of the public as a business, rather than in a casual or personal fashion, upon the outcomes of future contingent events" (Penal Law § 225.00[9]). The petition alleges that one New York account placed more than five bets totaling more than $5,000 on 27 August 2026. It alleges that "Respondent accepted and received the wagers" (petition ¶ 70).
The gap is the counterparty structure. The petition alleges that the contracts "provide for Respondent to pay the bettor $1.00" (petition ¶ 42). QCX LLC represented to the CFTC that it offers trading on an anonymous electronic central limit order book and that a registered derivatives clearing organization clears every listed contract on a fully collateralized basis (Order of Designation, In re QCX LLC [CFTC July 9, 2025], at 1–2). CFTC Letter No. 25-48 identifies that clearing organization as an affiliate, QC Clearing LLC, doing business as Polymarket Clearing, and conditions the staff position on its clearing every covered contract (at 1, 5). The petition does not name that affiliate. On those records, Polymarket will argue that QCX LLC matches orders between members of the public and accepts no bets itself. The Attorney General can answer that an exchange that takes each order, debits the account and credits the payout accepts the bet (petition ¶¶ 60–61). The answer depends on the rulebook, the clearing arrangement and the account flows, which have not been examined. The first-degree count cannot be resolved on the petition alone.
Possession of gambling records under Penal Law § 225.20
The records count depends on the bookmaking theory and is weaker than the promotion counts. Possession of gambling records in the first degree requires that a person, "with knowledge of the contents thereof," possess a writing, paper, instrument or article "of a kind commonly used in the operation or promotion of a bookmaking scheme or enterprise, and constituting, reflecting or representing more than five bets totaling more than five thousand dollars" (Penal Law § 225.20[1]). The petition relies on trade confirmations, account histories and public Daily Market Reports (petition ¶¶ 72–74). It also cites a rulebook commitment to keep a printable record of each trade (petition ¶ 75).
Two points weaken the count. The petition asserts, without supporting facts, that the exchange's records are "of a kind commonly used" in a bookmaking enterprise (petition ¶ 76). Records that a CFTC-designated exchange keeps under its own rulebook present a factual dispute on that element. The petition also describes the confirmations inconsistently. Paragraph 73 places them on the platform, while paragraph 115 refers to "email confirmations." If the bookmaking theory fails, this count adds little. The statute describes bookmaking records, so these records qualify only if the underlying activity is bookmaking; that reading is an inference from the statutory text.
Unlicensed sports wagering under the Racing Law
The Racing Law counts apply to the sports contracts and are the most direct state-law fit, subject to the same federal question. "Sports wagering" means "wagering on sporting events or any portion thereof, or on the individual performance statistics of athletes participating in a sporting event, or combination of sporting events, by any system or method of wagering" (Racing Law § 1367[1][x]). The definition covers websites and mobile applications. It expressly includes "parlays" and "over-under bets" (id.).
Two further provisions govern operators. No entity may "administer, manage, or otherwise make available a mobile sports wagering platform to persons located in New York state unless licensed" (Racing Law § 1367-a[2][a]). No entity may "directly or indirectly operate an unlicensed sports wagering platform in the state of New York, or advertise or promote such unlicensed platform to persons located in the state of New York" (Racing Law § 1367-a[4][b]).
The petition alleges game-winner contracts, a spread contract on a Dodgers-Mets game and parlay-style "combos" (petition ¶¶ 45, 50–51, 62). It alleges that Polymarket offers them by website and mobile application (petition ¶ 52) without any Gaming Commission license (petition ¶ 53). Each alleged product appears in the statutory definition if a trade is "wagering." Two allegations support the advertising prong. One is a post announcing a New York Rangers partnership that calls Polymarket "a NYC based company" (petition ¶ 34). The other is a set of solicitations tied to the Knicks in the NBA Finals (petition ¶ 38). The Racing Law does not reach the election or Big Brother contracts, which are not sporting events.
Subdivision 16(a) of § 1367 opens with the words "In addition to any criminal penalties provided for under article two hundred twenty-five of the penal law." That text indicates that the Legislature expected unlicensed sports wagering to fall within the Penal Law's gambling offenses as well. It supports the Penal Law counts as applied to the sports contracts.
The sixth cause of action overreaches in one respect. It alleges that Polymarket violated § 1367-a(2)(a) by offering contracts on prohibited sports events and by permitting 18- to 20-year-olds to trade (petition ¶¶ 129–130). The duties it invokes are addressed to licensees. Section 1367-a(4)(a) lists measures imposed "[a]s a condition of licensure." Section 1367-a(4)(c) and (d) each begin "Mobile sports wagering licensees shall not." An unlicensed operator violates § 1367-a(2)(a) by operating without a license. The licensee conditions describe what a licensed operator must do and supply no separate count against an entity that holds no license. Those allegations still bear on the scope of any injunction and on the harm the State describes.
One of the petition's college examples may fall outside the prohibition. A "prohibited sports event" includes any event in which a New York college team participates (Racing Law § 1367[1][s]). The same paragraph provides that "a collegiate tournament" is not a prohibited sports event. Neither is a tournament game in which no New York college team plays (id.). The contract on the 2027 men's college basketball national champion concerns a tournament outcome and may fall within that exclusion (petition ¶ 49). The 3 September 2026 Buffalo-Albany football contract concerns a single game between New York college teams and falls within the prohibition (id.). Wagering on either event is still "sports wagering," because § 1367(1)(x) uses the broader term "sporting events."
The civil penalty is capped and discretionary. The penalty applies to an unauthorized person "who knowingly offers or attempts to offer sports wagering or mobile sports wagering in New York" (Racing Law § 1367[16][a]). That person is liable "for a civil penalty of not more than one hundred thousand dollars for each violation, not to exceed five million dollars for violations arising out of the same transaction or occurrence" (id.). The penalty is recoverable "in a civil action brought by the attorney general" (id.). The prayer seeks a fixed $100,000 "for each offering or attempt to offer" (petition, prayer ¶ H). That request treats the statutory maximum as the amount due and does not mention the $5,000,000 limit. The Attorney General brought a special proceeding, but a proceeding in the wrong form "shall not be dismissed solely because it is not brought in the proper form" (CPLR 103[c]).
The constitutional predicate under article I, § 9
The constitutional count is the weakest state predicate in form, although its substantive test favors the State for sports contracts. Article I, § 9 provides that, with enumerated exceptions, no "lottery or the sale of lottery tickets, pool-selling, book-making, or any other kind of gambling" shall "hereafter be authorized or allowed within this state" (NY Const, art I, § 9[1]). It directs that "the legislature shall pass appropriate laws to prevent offenses against any of the provisions of this section" (id.).
The Court of Appeals has defined constitutional "gambling" in two categories. It "encompasses either the staking of value on a game in which the element of chance predominates over the element of skill or the risking of value through bets or wagers on contests of skill where the pool of wagered value is awarded upon some future event outside the wagerer's influence or control" (White v Cuomo, 38 NY3d 209, 228 [2022]). A stake on a professional baseball game falls within the second category if the losing side's stakes fund the winning side's payout. That is the ordinary reading of a fully collateralized binary contract, and the CFTC's designation order records that every contract on the exchange is cleared on a fully collateralized basis (Order of Designation at 2). The clearing organization's rules, which would confirm how payouts are funded, have not been examined, so the funding point remains an inference.
The petition instead pleads that chance predominates (petition ¶ 79). That allegation tracks the first category. It invites a factual dispute about forecasting skill that the second category makes unnecessary for sports contracts.
The form problem is that article I, § 9 speaks to what the State may authorize and instructs the Legislature to enact enforcement laws. Penal Law article 225 is that enforcement legislation. No decision has been identified that treats a private operator's conduct as a direct violation of article I, § 9 for § 63(12) purposes. The count therefore likely rises or falls with the Penal Law counts and supplies no remedy that they do not.
The Wire Act predicate
The Wire Act count is the weakest merits predicate. Section 1084(a) reaches a person "being engaged in the business of betting or wagering" who "knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest" (18 USC § 1084[a]). It also reaches a communication "which entitles the recipient to receive money or credit as a result of bets or wagers" (id.). Subsection (b) exempts information assisting the placing of sports bets that moves from a State where the betting is legal into a State where it is also legal (18 USC § 1084[b]).
The petition alleges interstate transmissions from New York to users elsewhere, including communications about winning trades (petition ¶ 68). Two elements are contested. The first is whether an exchange operator is "engaged in the business of betting or wagering." The second is whether a CFTC-listed contract is a "bet or wager" under a statute that does not define the phrase. Congress excluded transactions on registered entities under the CEA from the definition of "bet or wager" in the Unlawful Internet Gambling Enforcement Act (31 USC § 5362). The Ninth Circuit read that exclusion as confined to that Act (Assad, slip op at 26–27 n 4), which helps the State on the definitional point.
The practical difficulty lies elsewhere. The United States and the CFTC have sued New York to stop state enforcement against CFTC-registered exchanges (United States v New York, No. 1:26-cv-03404 [SD NY], complaint filed April 24, 2026). No federal Wire Act prosecution of a designated contract market has been identified. The count adds little on the merits because the same conduct is pleaded under seven state predicates. It also supplies the federal element on which Polymarket's removal depends. The Attorney General thus gains a federal predicate of doubtful strength at the cost of a harder remand dispute.
Federal preemption under the Commodity Exchange Act
Preemption is the dispositive issue, and no controlling authority resolves it. Neither the Supreme Court nor the Second Circuit has ruled on the merits, and the courts that have ruled are divided. On the authority available on 25 September 2026, a court sitting in New York is more likely to reject preemption for the sports contracts than to accept it. The decision closest to this forum (Williams) and the most recent circuit decision (Assad) both reject it. That assessment is only as strong as the unresolved "swap" question beneath it.
The CFTC has "exclusive jurisdiction" over "accounts, agreements . . . , and transactions involving swaps or contracts of sale of a commodity for future delivery . . . traded or executed on a contract market designated pursuant to section 7 of this title" (7 USC § 2[a][1][A]). The same subparagraph contains a savings clause. Nothing in the section shall "supersede or limit the jurisdiction at any time conferred on . . . other regulatory authorities under the laws of the United States or of any State" (id.).
A "swap" includes a transaction that provides for payment "dependent on the occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence" (7 USC § 1a[47][A][ii]). The CFTC "may determine" that event contracts involving "activity that is unlawful under any Federal or State law," "gaming" or four other listed categories are contrary to the public interest (7 USC § 7a-2[c][5][C][i]). A contract so determined may not be listed (7 USC § 7a-2[c][5][C][ii]). Congress expressly preempted state gaming and bucket-shop laws only for certain excluded or exempted transactions and excluded electronic trading facilities (7 USC § 16[e][2]).
The first dispute is whether a sports contract is a "swap." The Third Circuit held that the outcome of a sports event "certainly can be associated with a potential financial, economic, or commercial consequence" (Flaherty, slip op at 8). On that reading, Kalshi's sports contracts fit the definition (id.). The Ninth Circuit disagreed on three grounds (Assad, slip op at 23–33, 37–41). It held that a game's outcome is not naturally the "occurrence" of an "event." Its reading of "associated with" requires an inherent connection to a financial consequence. The court added that the broader reading would raise a major-questions problem. Press reports state that Kalshi petitioned for rehearing en banc on 9 September 2026 and that the petition remained pending on 25 September 2026.
Polymarket's own sports products have fared poorly in the courts that have considered them. On 10 March 2026 the Western District of Michigan denied QCX LLC a temporary restraining order (QCX LLC v Nessel, No. 26 Civ. 710, 2026 WL 1166362 [WD Mich Mar. 10, 2026]). As Williams describes that ruling, it found the exchange's sport-related products outside the CEA's definition of a swap (Williams, slip op at 11 n 5, citing Nessel at *2–3). The Ninth Circuit reached the same view of Kalshi's contracts five months later. Press reports state that the Michigan court denied QCX LLC a preliminary injunction on 17 June 2026. In Nevada, a state court entered a temporary restraining order against Polymarket's event contracts on 29 January 2026 (as recited in Blockratize, ECF No. 41, at 2), and press reports state that the same court granted a preliminary injunction in June 2026. The June rulings have not been independently confirmed. In a July 2025 request to CFTC staff, Polymarket described all the contracts it then intended to list, beginning with contracts based on foreign-exchange rates, as options "technically within the definition of a 'swap'" (CFTC Letter No. 25-48, at 2). That statement concerns different products and is not a CFTC determination.
The second dispute is the scope of displacement if the contracts are swaps. Williams assumed that Kalshi's contracts were swaps and still found neither field nor conflict preemption (slip op at 11–19). It relied on three textual points (slip op at 13–15). The first is the savings clause in § 2(a)(1)(A). The second is the Special Rule's reference to activity unlawful under "State law." The third is § 16(e), which preempts state gaming laws only for certain excluded or exempted transactions and electronic trading facilities. Williams also rejected Kalshi's impossibility argument (slip op at 16–17). It read the CFTC's impartial-access rule to permit separate categories of market participants and found nothing in the rule that requires a contract market to offer every contract nationwide (id.).
Flaherty reached the opposite result over a dissent by Judge Roth, who would have held New Jersey's laws neither field nor conflict preempted (Flaherty, Roth, J., dissenting, slip op at 1–2). The majority defined the preempted field as trading on designated contract markets (slip op at 9–12). It held that state enforcement would recreate the patchwork of state regulation that Congress replaced (slip op at 12–13).
The third dispute concerns 17 CFR 40.11(a)(1). Under that rule, a registered entity "shall not list for trading or accept for clearing" a contract based on an excluded commodity "that involves, relates to, or references terrorism, assassination, war, gaming, or an activity that is unlawful under any State or Federal law" (17 CFR 40.11[a][1]). The Ninth Circuit held that the rule remains in force (Assad, slip op at 33–36). The CFTC never began the 90-day review that § 40.11(c) provides, and its inaction does not make a gaming contract lawful (id.). Judge Lee, concurring, read the statute as giving the CFTC discretion. He agreed that the regulation controls while it remains in effect (Assad, slip op at 49–50).
The Third Circuit treated the same CFTC inaction as leaving self-certified contracts presumptively approved (Flaherty, slip op at 7). In June 2026 the CFTC proposed amendments to § 40.11 that would define "gaming" (Prediction Markets; Public Interest Determinations, 91 Fed Reg 35806, 35818 [proposed June 12, 2026]). The proposal states the CFTC's view that § 40.11 has operated as a discretionary review process and not as a self-executing prohibition (id. at 35815). The Ninth Circuit declined to defer to that reading (Assad, slip op at 35, citing Loper Bright Enterprises v Raimondo, 603 US 369 [2024]), and a proposed rule has no legal effect until adopted (Assad, slip op at 36).
The CFTC supports preemption in litigation. On 24 April 2026 the United States and the CFTC sued the State of New York, the Governor, the Attorney General, the Gaming Commission and its members (United States v New York, No. 1:26-cv-03404 [SD NY], complaint ¶¶ 15–23). The complaint seeks a declaration that Racing Law § 1367, Penal Law article 225 and other state gambling laws are preempted as applied to transactions on designated contract markets, together with an injunction against their enforcement (id. ¶¶ 83–98, prayer ¶¶ 1–2). Press reports state that the court denied the federal plaintiffs a temporary restraining order in late July 2026. The same reports state that Judge Schofield heard argument on their preliminary-injunction motion on 14 September 2026 and has not ruled. A preliminary injunction in that suit could restrain enforcement of this petition's state-law counts, depending on its terms. The Wire Act count rests on federal law and falls outside the relief the complaint describes.
The CFTC has also acted outside litigation. After the Attorney General sued KalshiEX LLC on 31 July 2026 and sought a temporary restraining order, the CFTC invoked its emergency authority and ordered Kalshi to continue operating in accordance with the CEA's core principles (CFTC Release No. 9281-26 [Aug. 11, 2026]). Before that order, the Williams court had given little weight to an earlier CFTC order stating that Kalshi violated federal law by complying with a Michigan court order, because Kalshi did not argue that its designation was at risk (Williams, ECF No. 113, at 2). A comparable order directed to QCX LLC would give Polymarket a stronger impossibility argument than Kalshi presented in Williams. That point is an inference, and no decision has been identified on whether a CFTC emergency order can displace a state-court injunction.
These federal decisions are persuasive only in a New York court. New York courts follow the United States Supreme Court on federal questions. Lower federal rulings on those questions serve as persuasive authority without binding state courts (People v Kin Kan, 78 NY2d 54, 59–60 [1991]). If the case remains in federal court, the Second Circuit's decision in the Williams appeal (No. 26-1835) will be the most important pending ruling. The district court denied Kalshi an injunction pending that appeal on 27 July 2026, finding no strong showing of likely success (KalshiEX LLC v Williams, No. 25 Civ. 8846, ECF No. 113, at 2–3 [SD NY July 27, 2026]). A Sixth Circuit motions panel had earlier denied Kalshi an injunction pending appeal (KalshiEX LLC v Schuler, No. 26-3196, 2026 WL 1295806 [6th Cir Apr. 24, 2026], as cited in Williams, slip op at 6). Press reports state that a Tenth Circuit motions panel did the same on 8 September 2026. Those interim orders do not decide the merits. The Supreme Court's docket lists New Jersey's petition for certiorari in Flaherty as No. 26-299; press accounts report that it was docketed on 8 September 2026 and that Kalshi's response is due on 8 October 2026.
Polymarket's position differs from Kalshi's in two respects that could matter. First, its own sports products have already been found outside the "swap" definition at the temporary-restraining-order stage in Michigan (QCX LLC v Nessel, as described in Williams, slip op at 11 n 5). Second, the relief sought here reaches trades "within or from New York" (petition, prayer ¶ A). An order that stops a New York-based exchange from serving users in other States would press on the national market that Flaherty treated as the CEA's central concern (slip op at 12–13). It would also reach beyond the Racing Law's reference to "persons located in New York state" (Racing Law § 1367-a[2][a]). A court that rejects preemption for New York users could still confine any injunction to them; that point is an inference from the cited texts.
For the election and entertainment contracts, the preemption analysis is less developed. Assad remanded the election contracts (slip op at 41 n 7). None of the decisions discussed here resolves whether an election or reality-television contract is a "swap" or involves "gaming" under § 40.11(a). The State's claims against those contracts rest on the Penal Law and the Constitution alone.
The better-supported conclusion in this forum is that the CEA does not preempt New York's gambling laws as applied to the sports contracts. That conclusion rests on either of two alternative premises. The first is that the contracts are likely not swaps (Assad). The second is that, even as swaps, the savings clause and the Special Rule leave room for state gambling law (Williams). A published circuit decision (Flaherty) and the CFTC contest both premises. The conclusion would fail if the Supreme Court grants certiorari in No. 26-299 and affirms Flaherty, or if the Second Circuit reverses Williams. Rehearing en banc and reversal of Assad would remove the first premise but leave the second.
Remedies and their limits
If the State establishes liability, an injunction limited to New York users is the most secure remedy. The monetary requests face textual and constitutional limits. Section 63(12) authorizes injunctive relief, restitution and damages (Executive Law § 63[12]). The Court of Appeals has held that disgorgement may be available as an equitable remedy under the statute (Greenberg, 27 NY3d at 497–498). Williams treated the cost of state-by-state geolocation as an ordinary burden of regulation, and the Ninth Circuit found that Kalshi could geofence as regulated Nevada operators do (Williams, slip op at 16–17, 19–20; Assad, slip op at 42–43, 45). Those findings support the practicability of a geographically limited order.
Restitution needs a measure that the petition does not supply. The prayer seeks "full restitution to customers who have engaged in betting on Respondent's platform" (petition, prayer ¶ D). On its face, that language includes customers who won. The petition does not allege deception, so any restitution theory would rest on the illegality of the trades. The court would need to decide whether restitution means net losses, fees paid or both. It would also need to decide whether traders who profited are entitled to anything. No controlling authority on that measure for § 63(12) illegality claims has been identified.
Disgorgement faces two limits. It must be tied to gains from illegal conduct in New York. The petition's revenue figures, a valuation above $20 billion and annualized revenue "well over $1 billion," describe the wider Polymarket business and come from a news article (petition ¶¶ 9, 71, citing Andreu Aff., Ex. 27). A divided First Department also vacated a § 63(12) disgorgement award of nearly half a billion dollars (People v Trump, 2025 NY Slip Op 04756 [1st Dept Aug. 21, 2025]). The two-justice opinion of Justice Moulton treated the award as an excessive fine under the Eighth Amendment, and no opinion commanded a majority (id.). Press reports state that the Attorney General's appeal to the Court of Appeals is pending; no decision has been identified.
The treble-gain penalty lacks a civil vehicle. Penal Law § 80.10(1) governs "[a] sentence to pay a fine, when imposed on a corporation" for an offense. Its paragraphs set amounts by the class of "conviction" (id.). Paragraph (e), as currently in force, permits "[a]ny higher amount not exceeding three times the amount of the corporation's gain from the commission of the offense" (Penal Law § 80.10[1][e]). A § 63(12) special proceeding produces no conviction. The petition cites no statute that converts the Penal Law fine into a civil penalty. An earlier version of paragraph (e) allowed double the gain. The amendment took effect when signed on 16 October 2025 (L 2025, ch 467, § 2). The earlier cap would matter only if a criminal court later fined QCX LLC for conduct before that date, and the petition places the platform launch after it, on 3 December 2025.
The remaining monetary requests are narrower. The Racing Law penalty is capped at $100,000 per violation and $5,000,000 per transaction or occurrence (Racing Law § 1367[16][a]). It also requires knowing conduct (id.). Costs under CPLR 8303(a)(6) are discretionary and awarded on motion, in "a sum not exceeding two thousand dollars against each defendant." The accounting request seeks each customer's identity, an itemization of customers' bets and losses, and Respondent's gains (petition, prayer ¶ C). The petition does not explain why customer identities are needed to calculate restitution or disgorgement.
Disclaimer
This document contains general observations on a pending public proceeding. It is not legal advice or a legal opinion, and it does not state the official position of its authors or of any organization with which they are associated. Nothing in it is an official statement made on behalf of any person or body.
The authors do not represent any party to the proceeding. Neither the preparation nor the distribution of this document creates an attorney-client relationship or any other professional relationship with any reader.
The observations rest on publicly available materials as they stood on 25 September 2026. Facts drawn from the petition are allegations that no court has adjudicated, and other facts come from the public records and press reports identified in the text. The law and the procedural posture may change after that date. Assessments of likely outcomes reflect the authorities available on that date and are not assurances of any result.
This document is provided for general information only. No person should act or refrain from acting on it without advice from qualified counsel on that person's specific circumstances. To the extent permitted by law, the authors accept no liability for any reliance on its contents.
