The U.S. Commodity Futures Trading Commission (CFTC) has sued three states in the latest clash between the commission and state regulators over its jurisdiction over prediction markets. This move comes as more states move to crack down on prediction markets such as Polymarket and Kalshi, claiming that they are operating unlicensed sports betting platforms.
CFTC Sues Three States Over Prediction Markets Jurisdiction
In a press release, the CFTC revealed that it had filed lawsuits challenging the actions of Arizona, Connecticut, and Illinois against prediction markets. The commission stated that various states have attempted to outlaw, regulate, or restrain the activities of these platforms despite the agency’s clear and longstanding exclusive jurisdiction over them.
“Congress long ago decided that a national framework for commodity derivatives markets was preferable to a fragmented patchwork of state regulations,” the statement further read. As CoinGape reported, Arizona criminally charged Kalshi last month. Meanwhile, Connecticut and Illinois have issued cease-and-desist letters to prediction markets.
Commenting on this latest action, CFTC Chair Michael Selig said that they will continue to safeguard their exclusive regulatory authority over these prediction markets and defend market participants against “overzealous state regulators.” He also noted that this is not the first time states have tried to impose inconsistent and contrary obligations on market participants, but that Congress rejected such a move from state regulators.
It is worth noting that the CFTC had filed an amicus brief in February in Crypto.com’s case against Nevada to defend its jurisdiction over prediction markets. This clash between the commission and state regulators comes as prediction markets continue to face more scrutiny, especially regarding sports betting and insider trading. As CoinGape reported, U.S. senators introduced a bipartisan bill to ban sports betting on prediction markets.
More Lawsuits On The Way
Legal expert Daniel Wallach said in an X post that there is likely to be more federal lawsuits against other states that have sent cease-and-desist letters to these prediction markets. However, he added that by filing these lawsuits, the CFTC may have “unwisely” given the states standing to sue over non-enforcement of Rule 40.11(a)(1).
That provision prohibits event contracts involving terrorism, war, assassination, gaming, and other unlawful activities under federal and state laws. Prediction markets have also been in the spotlight in this regard, with top prediction market Polymarket currently offering contracts related to the Iran war.
Meanwhile, Wallach also opined that the CFTC seems to be targeting states that have not yet had court rulings and those where it perceives the oral arguments went very well for the prediction markets, such as Illinois.
