TLDR The CFTC has filed lawsuits against Arizona, Connecticut, and Illinois over prediction market regulation, claiming exclusive federal jurisdiction over event contracts. The lawsuits stem from cease-and-desist orders and criminal charges those states brought against prediction market operators like Kalshi. The central legal question is whether prediction market contracts are federally regulated derivatives or state-regulated gambling products. Federal and state courts remain split on the issue, with key rulings expected in Arizona and Nevada. CFTC Chair Michael Selig has signaled a more aggressive federal stance, pledging to defend prediction market operators against state regulators.
The Commodity Futures Trading Commission has filed lawsuits against three U.S. states in a direct challenge over who gets to regulate prediction markets. The agency sued Arizona, Connecticut, and Illinois, arguing that state regulators are overstepping into federal territory.
The lawsuits center on event contracts offered by platforms like Kalshi. These contracts let users trade on whether a future event will happen. The CFTC says these products are derivatives and fall under its exclusive authority.
Each of the three states had previously taken enforcement action against prediction market operators. Arizona went furthest, filing criminal charges against Kalshi. Connecticut and Illinois issued cease-and-desist orders.
The CFTC is leaning on the Commodity Exchange Act for its argument. That law gives the agency primary authority over futures, options, and swaps traded on federally regulated exchanges. The agency says states cannot apply gambling laws to products listed on those exchanges.
State regulators see it differently. They argue that some contracts, especially those tied to sporting events, are closer to gambling than financial instruments. They say users are simply wagering on outcomes, not engaging in hedging or derivatives trading.
Courts Remain Divided on Key Legal Questions
This disagreement has already produced conflicting rulings across the country. In the