Coinbase has fired back at New York Attorney General Letitia James, swiftly removing her lawsuit from state court and shifting the high-stakes battle over prediction markets to federal court.
In a post on X, Coinbase Chief Legal Officer Paul Grewal announced the removal, writing: “We have removed this action to federal court pursuant to 28 U.S.C. §§ 1331, 1441, and 1442. New York’s claims necessarily raise disputed and substantial questions of federal law. They are subject to complete preemption. And New York cannot defeat federal-officer removal through artful pleading.”
The announcement directly references Coinbase’s earlier statement on the lawsuit, where Grewal emphasized that prediction markets are “federally regulated national exchanges, registered with the CFTC” and that the issue is already “proceeding in New York federal court as we speak.”
Background on the New York Lawsuit
On April 21, 2026, New York Attorney General Letitia James filed parallel lawsuits in Manhattan state court against Coinbase and Gemini. The complaints allege that both platforms’ prediction market products—allowing users to trade on real-world events such as sports results and elections—constitute illegal gambling under New York law because they lack required gaming licenses from the New York State Gaming Commission.
James stated at the time: “Gambling by another name is still gambling, and it is not exempt from regulation under our state laws and Constitution.” The suits also highlighted that users aged 18–20 were allegedly permitted to participate, below the state’s legal betting age of 21.
Coinbase’s Legal Strategy
By invoking federal removal statutes, Coinbase is arguing that the dispute involves significant federal questions under the Commodity Exchange Act and that state claims are preempted by federal regulation of CFTC-registered contract markets. The company positions its prediction markets—launched in partnership with Kalshi in January 2026—as legitimate financial instruments subject to national oversight rather than fragmented state gambling rules.
This federal shift aligns with Coinbase’s long-standing push for clear federal frameworks in crypto and derivatives markets. It also echoes ongoing court battles, including recent rulings affirming CFTC authority over similar platforms like Kalshi. The removal comes amid a flurry of regulatory activity around prediction markets. Earlier this year, multiple Senate and House bills sought to restrict event contracts on sports, politics, and other outcomes, while federal courts have pushed back against state-level overreach.
What This Means for the Industry
Shifting the case to federal court could set a precedent for how prediction markets are classified nationwide. Coinbase and industry advocates contend that treating these platforms as CFTC-regulated exchanges fulfills congressional intent and provides the regulatory clarity the sector has long sought.
Gemini has not yet commented publicly on whether it will pursue a similar removal for its portion of the lawsuit. Coinbase continues to operate its prediction markets while the litigation proceeds, underscoring the company’s commitment to defending what it views as federally sanctioned innovation.
Shares of Coinbase Global (COIN) declined 7.4% yesterday following the lawsuit announcement, as investors weighed the risk of a protracted battle with New York’s aggressive regulators. However, the pivot to federal court provides a strategic advantage for proponents of prediction markets, as federal judges have historically been more receptive to the “financial utility” argument of event contracts than state-level “anti-vice” regulators.
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