Key Points
- The NYC Council sent letters with over 60 questions to Kalshi, Polymarket, Coinbase and Gemini Titan, giving each platform 14 days to respond and signalling potential new consumer protection legislation.
- A Wall Street Journal investigation reviewed more than 1,100 Polymarket promotional videos and found 70% featured fake trades on dummy websites, with around $900,000 in winnings shown that were never actually won, across 140 million views.
- The marketing probe runs separately from New York Attorney General Letitia James’s $36 billion lawsuit against Kalshi, creating two simultaneous legal fronts the industry must now manage.
Somewhere between a TikTok creator celebrating a $100,000 “win” and the fine print nobody reads, prediction markets quietly built a marketing machine that regulators are now pulling apart. On 12 August 2026, New York City Council Speaker Julie Menin announced a formal investigation into four of the industry’s biggest names, Kalshi, Polymarket, Coinbase and Gemini Titan, over allegations of staged trade videos, undisclosed influencer payments and advertising that may have reached minors. The central question is not whether these platforms are legal. Courts are already fighting over that. The question is whether they lied to get users through the door.
The 60-Question Letter Nobody Wanted
Menin’s office sent formal letters to all four companies on 11 August, each containing more than 60 questions covering New York revenue figures, local user counts, influencer contract terms and the full mechanics of each company’s promotional operations. Platforms were given 14 days to respond. Three of the four, Kalshi, Polymarket and Gemini Titan, are headquartered in New York City. Coinbase operates primarily from Texas.
“Prediction markets aggressively entice consumers to bet and wager on sports, politics, culture, weather, and pretty much anything,” Menin said. “We refuse to let New Yorkers, especially our young people, become collateral damage.”
The responses from the companies were measured. Polymarket said it “looks forward to engaging with the New York City Council on this matter.” Kalshi’s spokesperson Dani Lever said the company looks forward to “educating the New York City Council about our business model and practices.” Coinbase stated it “offers our customers access to federally regulated prediction markets overseen by the CFTC, and fully complies with applicable laws.”
What the WSJ Found First?
The investigation was not spontaneous. In June, the Wall Street Journal reviewed more than 1,100 Polymarket promotional videos posted by paid creators between December 2025 and mid-May 2026. Nearly 70% showed bets placed on dummy websites built to mimic the platform’s real interface. The fake bets totalled approximately $1.9 million. In 118 separate videos, creators displayed nearly $900,000 in supposed winnings. Public trading records showed those same positions would have generated losses exceeding $166,000 had they been placed on the live platform.
The marketing agency, Virality, handled the creator network and ensured that creators received payment only if at least 60% of their audience was from the US. The video campaign achieved more than 140 million views on TikTok, YouTube, and Instagram, as per Tubular Analytics. Guidance obtained by the Journal, from an archived chat record of almost 20,000 chats, revealed that Virality had stated that all the reposts needed to be “spontaneous and authentically personal.” None of the videos had disclosed the paid association until journalists started asking questions.
The Council’s letters cited these findings directly and asked whether comparable tactics were used by the other three platforms under investigation. Council Member Harvey Epstein, chair of the Committee on Consumer and Worker Protection, put the scale of the industry plainly: “Online prediction markets are surging in popularity, with some projecting $300 billion in volume on the platforms this year.”
Why This Probe Is Different From the Gambling Lawsuits?
Much of the legal battle prediction markets have faced hinges on a single contested question: are event contracts financial instruments regulated by the CFTC, or are they gambling products subject to state licensing? Federal courts have landed on both sides. But the NYC Council’s investigation operates on entirely different legal terrain.
Under New York City’s consumer protection code, deceptive advertising is prohibited regardless of how the underlying product is classified. Federal preemption arguments, which Kalshi and others have deployed to resist state gambling enforcement, do not apply to false advertising claims at the city level. A staged trade video is a staged trade video whether the product it promotes is classified as a commodity or a wager.
The Council is also examining whether advertising restrictions that apply to casinos and online sportsbooks should be extended to prediction markets. Platforms have avoided those rules because their products are registered as financial instruments rather than bets. That regulatory gap is now under direct scrutiny, and the Council has indicated it may introduce new consumer protection legislation, enforcement programmes and public education campaigns depending on what the investigation surfaces. A public hearing is planned.
Two Legal Fronts at the Same Time
The marketing investigation comes at a time when Kalshi is handling a much larger legal challenge. In an action filed on 31 July 2026, New York Attorney General Letitia James and Governor Kathy Hochul have brought a civil enforcement case against Kalshi seeking over $36 billion from the company because of their claim that the platform is engaging in unlicensed gambling, is not licensed by the state, and has people as young as 18 trading in sports contracts when the minimum age is 21.
In response to the shutdown threats, the CFTC invoked its emergency powers under Section 8a(9) of the Commodity Exchange Act, which had been invoked just seven times throughout the history of the agency and instructed Kalshi to keep running across the country. CFTC Chairman Michael Selig described the potential shutdown as an “existential threat” to its registrants. However, even these emergency measures have not gone unchallenged. Judge Jed Rakoff of the US District Court dismissed the emergency restraining order filed by the CFTC on the grounds that the agency “has not shown a high likelihood of success on the merits or a likelihood of irreparable harm.” Similarly, Judge Analisa Torres refused to grant Kalshi’s injunction against the New York regulators, saying that the company failed to prove that federal law preempts state gambling laws.
Polymarket faces no current state litigation in New York, though the Council’s letter to its CEO Shayne Coplan was the most detailed of the four, given the specific allegations arising from the WSJ findings.
What the Council Can Actually Force?
Prediction markets cannot be banned by the New York City Council from operating in the city. What it can do is demand the records of the market: the marketing budgets, the demographic data used for targeting, influencer marketing deals and the discrepancy between the campaign representation and user experience. The records are accessible to anyone once they are released and include the federal authorities, state attorneys general and potential claimants.
Council Member Shekar Krishnan, chair of the Committee on Oversight and Investigations, was direct: “Apps like Polymarket are expanding rapidly unchecked.” The investigation can also be expanded beyond the current four platforms if the Council’s findings point that way.
Expert Analysis
The NYC probe targets a vulnerability prediction markets have not fully reckoned with. Their CFTC designation shields them from state gambling enforcement, but it says nothing about the truthfulness of an advertisement. If regulators confirm that creators were paid to show fabricated winning trades on fake platform replicas, without any disclosure, the platforms face consumer protection liability that exists independently of the gambling classification debate. For an industry that built its entire credibility on the premise that market prices reflect genuine crowd information, being found to have promoted manufactured ones is a problem no court ruling can fix. The 14-day response window gives the Council its first real look at the internal mechanics of how these companies reached millions of young users in New York, and whether what those users were shown bore any resemblance to the product they were actually signing up for.
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