Kentucky sued prediction markets Kalshi and Polymarket on Wednesday for running what its attorney general calls illegal sportsbooks, and named Coinbase Global Inc. (NASDAQ:COIN) and Robinhood Markets Inc. (NASDAQ:HOOD) as affiliates that helped route the bets.

Attorney General Russell Coleman is reaching back to an 18th-century law, the same one that once stuck PokerStars with triple its players’ losses.

Why Coinbase And Robinhood Got Named

Coleman’s office alleges Coinbase split fees with Kalshi on every bet placed through the crypto exchange.

Robinhood and Webull were cited as affiliates that may offer few resources for problem gamblers, a requirement under Kentucky law.

Coleman is invoking Kentucky’s Loss Recovery Act, which lets the state claw back triple the money residents lost on the platforms.

Kentucky has run this play before.

The same law produced an $870 million judgment against PokerStars in 2015, a figure that ballooned past $1.3 billion with interest before Flutter Entertainment settled for $300 million.

The court held the operator was a gambling “winner” on the hook for every dollar lost, simply because it took a cut of each pot.

The state claims nearly 89% of Kalshi’s roughly $23 billion in 2025 contract volume came from sports wagering, which Coleman says makes the “event contract” label a legal fiction.

A Red State Breaks With Trump

At its core, this is a fight over who gets to regulate prediction markets.

The platforms say they answer to the CFTC, a federal agency, and that no state can touch them. Kentucky, like more than a dozen other states, says the products are sports betting in a financial wrapper.

That standoff is what makes Coleman’s move awkward.

He is a Republican and a former Trump-nominated US attorney, but the Trump administration is backing the CFTC and the platforms, and Donald Trump Jr. advises both Kalshi and Polymarket.

The industry sued Kentucky on June 12 to kill a new 14.25% tax on prediction-market trades, and a state law takes effect July 15 banning licensed sportsbooks from working with the platforms. Coleman’s suits landed in between, which makes this look less like routine enforcement than a counterpunch.

“The CFTC is our regulator, not the states,” Kalshi spokesperson Jacki McGavick said, while Polymarket said the suit runs counter to the federal framework.

Polymarket traders put just a 20% chance on a federal law banning sports prediction markets being enacted this year.

Kalshi and Polymarket are private. That leaves Coinbase and Robinhood as the only two names in the suit investors can trade, and the only ones that will have to answer for it on an earnings call.

Image: Shutterstock.

Kalshi and Benzinga have an existing data collaboration agreement.