CFTC takes five states to court in prediction market fight
- The CFTC has filed lawsuits against Arizona, Connecticut, Illinois, New York and Wisconsin, asserting exclusive federal jurisdiction over licensed prediction market platforms.
- New York Attorney General Letitia James sued Coinbase and Gemini on April 21, seeking billions in fines and alleging the platforms operated illegal, unlicensed gambling operations.
- Tribal nations, professional sports unions and a bipartisan bloc of state attorneys general are mounting coordinated opposition as legal experts warn conflicting rulings could reach the US Supreme Court.
The Commodity Futures Trading Commission has filed lawsuits against five states in an escalating legal offensive to defend federal authority over prediction market platforms, deepening a nationwide clash that now spans courts, Congress, tribal governments and professional sports leagues.
The battle over whether sports-event contracts are financial products or gambling wagers has intensified sharply since early April. The CFTC, under Chairman Michael Selig, has sued Arizona, Connecticut, Illinois, New York and Wisconsin, arguing state gambling regulators have no authority over federally regulated prediction market exchanges.
The lawsuits target platforms including Kalshi, Polymarket, Coinbase, Robinhood and Crypto.com, all of which have launched or facilitated sports-event trading markets that state authorities argue are indistinguishable from licensed sports betting.
Federal jurisdiction argument
The CFTC’s position is that event contracts traded on its designated contract markets are derivatives governed exclusively by federal commodities law under the Commodity Exchange Act, not state gambling statutes. Congress long ago decided that a national framework for commodity derivatives markets was preferable to a fragmented patchwork of state regulations, the agency argues.
Michael Selig, Chairman of the CFTC, said:
“States cannot circumvent the clear directive of Congress. Our message to Wisconsin is the same as to New York, Arizona, and others: if you interfere with the operation of federal law in regulating financial markets, we will sue you.”
Arizona represents the sharpest escalation to date. On March 17, Arizona Attorney General Kris Mayes filed a 20-count criminal information against Kalshi, the first criminal prosecution of a CFTC-registered prediction market operator in the United States.
A federal court subsequently issued a preliminary injunction blocking that prosecution, with the judge finding that federal law preempts state gambling statutes as applied to CFTC-regulated exchanges.
The CFTC secured a significant appellate victory on April 6, when the Third Circuit Court of Appeals ruled 2-1 that New Jersey cannot enforce its gambling laws against Kalshi’s sports-related event contracts. The ruling was the first by a federal appeals court on the central preemption question and marked a landmark win for the industry.
The Ninth Circuit, however, signalled a different view in the Nevada case during April oral arguments, creating a direct circuit split that legal experts say makes Supreme Court intervention increasingly likely.
New York and tribal pushback
On April 21, New York Attorney General Letitia James filed separate lawsuits against Coinbase Financial Markets and Gemini Titan in state court, seeking fines, forfeiture of profits and restitution to customers. The complaints alleged the platforms exposed New Yorkers, including those aged 18 to 20, to illegal gambling despite New York’s minimum age of 21 for mobile sports betting.
The CFTC filed a counter-lawsuit against New York within days, arguing James’s actions intruded on the exclusive federal scheme Congress designed to oversee commodity derivatives markets.
Opposition extends well beyond state capitals. The Indian Gaming Association launched a dedicated litigation fund at its April convention, with the Ho-Chunk Nation of Wisconsin securing an early procedural victory allowing its tribal lawsuit against Kalshi to proceed. The IGA argues sports-event contracts infringe on exclusivity rights built into tribal-state gaming compacts under the Indian Gaming Regulatory Act.
Player associations representing the NFL, MLB, NBA, NHL and MLS filed a joint comment with the CFTC on April 30, urging a ban on “negative outcome” and “mention” contracts. The unions argued such markets expose athletes and their families to harassment and manipulation.
Supreme Court in view
More than 30 lawsuits are pending between prediction market platforms and state or tribal government entities across federal and state courts, according to industry trackers. A bipartisan group of state attorneys general has filed amicus briefs in support of Massachusetts’ separate case against Kalshi.
The US Senate passed a unanimous resolution in April barring senators and staff from trading on prediction markets. Congress is currently weighing at least 14 competing prediction market bills.
The fundamental classification question, financial derivative or sports bet, remains entirely unresolved. With circuit courts divided and the CFTC’s formal rulemaking process still underway, operators and investors face a prolonged period of regulatory uncertainty that will define the sector’s future in the US.
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