CFTC Sues Multiple States to Assert Exclusive Prediction Market Authority

The Commodity Futures Trading Commission (CFTC) has launched a series of federal lawsuits against Illinois, Arizona, Connecticut, and New York to prevent these states from applying local gambling laws to prediction markets. Led by Chairman Michael Selig, the agency argues that event contracts are commodity derivatives similar to grain futures and fall under exclusive federal jurisdiction. The CFTC asserts that a national framework is necessary to prevent a fragmented patchwork of state regulations that could increase fraud risks and weaken consumer protection.

State regulators have countered that these platforms facilitate illegal gambling and must adhere to state consumer protection and tax laws. In Illinois, Governor JB Pritzker's administration characterized the federal action as prioritizing corporate profits over people. Illinois legislators also introduced Senate Bill 4168, which would impose a $1 million license fee and a 50% tax on adjusted gross earnings for operators like Kalshi Inc. and Polymarket. In New York, Attorney General Letitia James sued Coinbase Financial Markets and Gemini Titan for operating without state gaming licenses, prompting the CFTC to sue the state in response.

Parallel legal battles continue in the courts, with the Ninth Circuit hearing cases regarding Nevada's attempts to ban sports-event contracts. While the Third Circuit previously ruled in favor of Kalshi against New Jersey, a contrary ruling in Nevada could trigger a U.S. Supreme Court review. Amidst the jurisdictional dispute, Governors JB Pritzker and Kathy Hochul signed executive orders prohibiting state employees from using insider information to trade in prediction markets.