The CFTC can shield a federally licensed exchange from a state gambling law. Nothing shields a marketing funnel from a consumer protection statute.
New York City Council Speaker Julie Menin sent letters on August 11 to Polymarket, Kalshi, Coinbase and Gemini Titan, asking more than 60 questions about their advertising, their New York revenue and how many of their users live in the five boroughs. The companies have 14 days to answer. The letters arrived one day before the Commodity Futures Trading Commission ordered Kalshi to keep operating in New York despite the state attorney general’s lawsuit, which puts the two fights on separate tracks. The CFTC claims exclusive authority over what these companies may list. It has said nothing about how they may sell it, and selling it is where the cost advantage lives.
Picture the Kalshi billboard that ran in Times Square last month with World Cup players and a live price on the screen. Now picture the version of that ad the City Council cares about, which is not a billboard at all. It is a college student on TikTok showing you a six-figure win he never made, on a website that was not the website.
What Happened
Menin sent the letters on August 11 to four companies with a New York City presence. Three of the four, Kalshi, Polymarket and Gemini Titan, are headquartered in the city. Her letter to Polymarket founder and CEO Shayne Coplan asked for details on promotional videos that appeared to show fabricated trades and on social posts promoting insider trading. She wrote that some of the advertising may have reached minors, and described reports that Polymarket worked with marketing agents and influencers to target young adults with deceptive advertising.
The Council cannot bring criminal charges. It can issue subpoenas to force document production, an authority it has rarely if ever used against a private firm. Menin said the Council is weighing legislation covering enforcement, public education campaigns, health measures and the raising or redirecting of public funds, and that she intends to hold public hearings.
A Polymarket spokeswoman said the company looks forward to engaging with the Council. A Coinbase spokeswoman said the company complies with applicable laws. Kalshi and Gemini Titan did not respond to requests for comment.
The Backstory
The Journal published its investigation on June 20. Reporters reviewed 1,105 videos posted by 10 creators endorsed by a Polymarket contractor between December 2025 and mid-May 2026. In roughly 70% of them a creator placed a bet. None of the $1.9 million in wagers shown was real. Across 118 of those videos, creators celebrated close to $900,000 in winnings on positions that would have lost more than $166,000 in live markets.
The mechanics were plain. Creators filmed on near-identical copies of the Polymarket site, including one at the misspelled domain poiymarket.com. A marketing firm called Virality managed the roster of mostly college-age clippers, paid them roughly $2,000 to $3,000 a month, and told them not to disclose the arrangement. Virality paid only when at least 60% of a creator’s audience sat in the United States, which matters because Polymarket’s main offshore platform has been barred from serving Americans since its 2022 CFTC settlement. The videos drew more than 140 million views across TikTok, YouTube and Instagram.
Senators Adam Schiff and John Curtis wrote to CFTC Chairman Michael Selig on June 26 asking whether the agency was examining the simulated trading sites and the undisclosed payments. The CFTC opened a probe. Polymarket audited its promotional content, restructured the marketing team, rewrote its partner guidelines, retained AlixPartners to monitor content, and hired compliance and risk executives for the US exchange it launched in May.
The Plan
Menin picked her lane with some care. She ran the New York City Department of Consumer Affairs under de Blasio, chaired the Council’s Committee on Consumer and Worker Protection, and taught preemption and home rule as an adjunct at Columbia. She took the speakership in January. Of every angle available to a city government, she chose the one where federal preemption has the weakest answer: advertising conduct and consumer deception.
That choice separates her from Attorney General Letitia James, who sued Kalshi on July 31 for operating an unlicensed gambling business and asked for more than $36 billion. Kalshi went to the CFTC, warned of an imminent market emergency, and on August 11 Selig invoked emergency authority to order the company to keep operating under the Commodity Exchange Act. It was the second time the CFTC has used that power since 1980. New York, Selig said, has no business regulating interstate financial markets.
An order that keeps an exchange open says nothing about whether a paid creator may film a fake win. Menin’s 60 questions also ask how much each company earns in New York and how many users are city residents, which reads less like consumer protection and more like the first draft of a tax base. Kalshi already floated a share of its trade revenue to the state in July, along with voluntary self-exclusion.
The Business Model Angle
Run the arithmetic on what Polymarket bought.
Ten sampled creators at $2,000 to $3,000 a month across roughly five and a half months comes to $110,000 to $165,000. The Journal reported dozens of creators overall, so scale the roster to 40 and the creator budget lands somewhere near $440,000 to $660,000. Against more than 140 million views, that is a cost of roughly $0.80 to $4.70 per thousand impressions, weighted toward a US audience by contract.
Compare that with the category these companies now compete against for the same attention. DraftKings spent $1.2649 billion on sales and marketing in 2024, or 26.5% of revenue. Polymarket crossed a $1 billion annualized revenue run rate in June. Apply the DraftKings ratio and Polymarket’s marketing line would run around $265 million a year. The creator campaign, as reported, cost a fraction of one percent of that.
An exchange sells liquidity. Liquidity is a network effect, and network effects have to be bought before they compound, which makes customer acquisition the price of the core asset rather than a line under operating expense. Kalshi and Polymarket found a channel roughly two orders of magnitude cheaper than the sportsbooks they are taking share from, and the discount came from the fabrication. Real creators posting real losing trades do not generate 140 million views. Strip out the staged wins and the funnel reprices toward DraftKings economics, which is the same place the “we are an exchange, not a house” argument was supposed to keep them away from.
Polymarket’s response tells you where management thinks the constraint now sits. The company hired Travis VanderZanden as chief growth officer, with marketing in his remit. VanderZanden founded Bird in 2017 and built it by dropping scooters onto sidewalks and negotiating with city halls afterward. Santa Monica fined the company for skipping permits in its first year. Bird raised more than $1 billion, went public through a SPAC in 2021, exited Germany, Sweden and Norway over rules it said made the unit economics impossible, and filed for Chapter 11 in December 2023. Hiring that operator the same week a city council opens an investigation is a statement about which government now matters.
The Risk
The steelman for the companies is real. Kalshi and Polymarket have won the substantive fight so far. Federal courts have not settled preemption, but the CFTC under Selig has been unambiguous, and a designated contract market is a serious license that took Gemini five years to obtain. A city council investigation carries no criminal exposure and produces hearings, not injunctions. Polymarket had already replaced the marketing team and hired a monitor before Menin’s letter landed, which is the response a regulator asks for.
The timing is the pressure. Trading fell after the World Cup ended in July. The NFL season starts in September, the midterms follow in November, and the 14-day response clock runs out around August 25, right at the front of the calendar these companies depend on. Kalshi’s own disclosures put sports at more than 90% of platform activity and 89% of 2025 revenue, so the seasonality is not a rounding error.
The second risk is replication. New York City has no monopoly on consumer protection ordinances or on councils that want revenue data from companies headquartered downtown. Minnesota already banned the products by statute. Wisconsin sued five platforms. A 37-state coalition backed Ohio against the CFTC’s preemption theory. Every one of those fights runs on gambling law, where the companies have a federal shield. A deceptive advertising claim runs on a different statute, and no CFTC order answers it.
The third risk sits inside the valuations. Coatue led a $1 billion round at $22 billion for Kalshi in May. Polymarket reached $15 billion when ICE’s $600 million closed in March. Those marks assume the growth curve holds. If acquisition cost triples because the cheap channel closes, the curve flattens while the burn does not.
Quick Questions
Does the CFTC order protect these companies from the City Council? No. The order tells Kalshi to keep operating its markets under federal derivatives law. It addresses listing and trading, not advertising conduct or consumer deception claims.
Can the City Council actually do anything? It can subpoena documents, hold hearings and write local law. It cannot prosecute. The subpoena power against a private firm is close to untested, which is part of why the letters landed as news.
Why did Coinbase get a letter? Coinbase runs prediction market contracts and has a New York presence. The company says it complies with applicable laws.
What happens on August 25? The 14-day response window closes. Expect partial answers, a fight over the revenue and user-count questions, and hearings scheduled into the fall.
The Business Model Analyst Take
Prediction markets spent two years winning the argument about what they sell. A binary event contract is a derivative, the CFTC regulates derivatives, and a state gambling regulator does not get a vote. That argument is holding, and the emergency order proves how much political capital the industry has accumulated behind it.
The argument they have not won is about how they sell it. Advertising law does not care whether the underlying instrument is a swap or a parlay. It cares whether the ad was true. Menin, who spent two years running the city’s consumer protection agency, went straight at the one surface where a federal license is worth nothing.
For anyone building a marketplace, the transferable lesson is about where you book customer acquisition. If your product is liquidity, your marketing spend is capital expenditure on the asset itself, and any regulatory change that raises the price of attention hits the asset, not the income statement. Polymarket’s creator campaign was not a growth hack that got caught. It was the discount rate on the whole model, and a city council with subpoena power is now pricing it.
Related reading: how Kalshi turned compliance into a weapon, New York’s $36 billion bet that Kalshi is a casino, Meta’s Arena app and the $130 billion prediction market, the Coinbase SWOT analysis and the Robinhood SWOT analysis.
