New York Council sends letters to Kalshi, Polymarket in prediction markets ad probe

New York City Council Speaker Julie Menin issued letters to Kalshi, Coinbase, Polymarket, and Gemini Titan, informing each company that the council has begun investigating allegations of “false, deceptive, unconscionable, and objectionable marketing practices.” 

The announcement comes right as the city’s fight with prediction markets made headway with both a major lawsuit and a federal emergency order issued within two weeks of each other.

What the Council says Kalshi and Polymarket did 

The investigation is set to cover advertisement tactics used by these organizations, such as undisclosed influencer marketing, videos showing trades on false websites made to look like Polymarket, showcasing winning bets that actually lost money, and finally, promoting insider trades. 

This adds to the Wall Street Journal investigation published in June, which found that Polymarket made use of social media influencers to pretend they made profits from bets they did not fund with their money. 

Following the investigation, CNBC reported that Polymarket has begun changing its marketing plan after the Commodity Futures Trading Commission (CFTC) opened a separate investigation into the organization. 

The chair of the Committee on Consumer and Worker Protection, Harvey Epstein, stated that urgency on the issue relates to the scale of influence these advertisements had on the prediction market’s value of $300 billion, and whether the advertisement was legal or not.

Why prediction markets can advertise differently than casinos

A major reason prediction markets advertise differently from casinos is that these platforms register their contracts as federally regulated financial instruments and not wagers. This means that advertising rules and consumer protection laws do not apply to them, which is why state regulators are clamping down on them.

Menin, the former head of consumer affairs for the state, said she intended to make use of the Council Authority to protect residents, especially minors and young adults, from predatory advertising. 

The Council went further to add that the investigation is to determine what new legislation, enforcement, or public health measures will help close the regulatory gap.

New York probe could collide with federal shield

The recent investigation is the latest in an ongoing fight that has been on for months. On the 31st of July, the state of New York filed a suit against Kalshi after Kalshi was denied a preliminary injunction bid against state officials. The city argues that Kalshi has operated as a sports prediction market without having the necessary license. 

However, yesterday, August 11, the CFTC used an emergency authority order to keep Kalshi operating in New York, stating that the state’s attempt to shut down the organization threatened the entire market. 

The CFTC Chairman, Mike Selig, said states have “no business regulating these interstate financial markets.” The recent decision marks the second time the CFTC has intervened to protect Kalshi, having done so earlier in a Michigan court dispute.

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