The Commodity Futures Trading Commission (CFTC) has invoked unprecedented emergency authority to allow prediction market Kalshi to continue operating, directly responding to a lawsuit filed by New York State Attorney General Letitia James on July 31, 2026. According to reports from the CFTC, the agency used its emergency authority on August 11 to direct the company to operate in line with the Commodity Exchange Act's Core Principles. CFTC Chairman Michael Selig stated that "New York intends to make event contract derivatives waste away under its iron curtain of state gaming laws before the courts get the chance to issue final rulings." The CFTC's Office of the General Counsel has now sent a letter to U.S. District Judge Lorna Schofield about the supplemental authority, effectively directing Kalshi to disobey state court orders as part of the agency's SDNY lawsuit against New York. The CFTC maintains that event contracts fall under federal derivatives law and should not be subject to state gaming rules, claiming exclusive jurisdiction over event contracts under the Commodity Exchange Act.
Industry leaders are increasingly calling for Supreme Court intervention in the escalating legal battle over prediction markets, with the Indian Gaming Association (IGA) confirming it has sent a petition to the Supreme Court to take up New Jersey's case. As reported by CDC Gaming, Jason Giles, executive director of the IGA, stated that "I think it should give some impetus for the U.S. Supreme Court to weigh in sooner rather than later." The IGA has also sent a petition to the Supreme Court to take up New Jersey's case over prediction markets, following a 2-1 ruling in April where the Third Circuit Court of Appeals found that federal commodities law preempts state gaming bans on Kalshi's sports event contracts. Supreme Court Justice Samuel Alito extended New Jersey's deadline until September 3 for the state to file a petition for certiorari, though it remains unclear if the state has formally petitioned the high court to take up the case.
The CFTC has already sued nine states - Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin - in an ongoing turf war claiming exclusive jurisdiction over event contracts under the Commodity Exchange Act. The Commission has also filed amicus briefs in the U.S. Court of Appeals for the Sixth and Ninth Circuits and the Supreme Judicial Court of Massachusetts in support of its position. State attorneys general, including New York State Attorney General Letitia James, counter that sports-related event contracts bypass local gaming compacts, consumer protections, and state-regulated sports betting frameworks. For example, Nevada maintains a strict, court-enforced ban against Kalshi for offering unlicensed event contracts, with state judges issuing a temporary restraining order followed by a preliminary injunction blocking the platform from offering sports, elections, and entertainment contracts without a state gaming license. Regulators and Kalshi have entered agreements requiring the platform to implement strict geofencing to block Nevada-based users and face daily financial penalties if it fails to completely block local trade execution.
New York filed its state action on July 31, requesting a temporary restraining order that could stop Kalshi from offering all event contracts nationwide. As reported by the CFTC, Kalshi notified the agency that such an order would create a market emergency. Attorney General James and Governor Kathy Hochul are seeking at least $36 billion in restitution for affected users, disgorgement of alleged gains, and penalties tied to unauthorized sports wagering offers. The state's arguments include that Kalshi lacks a permit from the New York State Gaming Commission, allows 18-to-20-year-olds to wager while New York law requires sports bettors to be at least 21, and bypasses state taxes that normally fund public schools and addiction treatment. The standoff centers on a fundamental disagreement regarding the legal definition of prediction market contracts, with the CFTC maintaining that prediction platforms function as national derivatives exchanges offering federally regulated "swaps" under the Commodity Exchange Act.
Under the CFTC emergency order, Kalshi must continue operating in compliance with federal law governing designated contract markets. Events contracts tied to commodities, climate, economics, and finance may continue under the Washington ruling, while contracts on sports, elections, politics, entertainment, culture, technology, science & mentions are restricted. The conflicting orders create a complex regulatory landscape where federal registration allows Kalshi to operate as a designated contract market, but several states maintain that sports and similar products remain subject to local gambling laws. The court also banned Kalshi from offering bets on "mentions," where users can wager on whether a public figure will say particular words, with the attorney general's office stating this type of betting is "rife with potential for cheating by people close to the source" and particularly unfair to consumers. These cases remain active in federal courts with no definitive nationwide final outcome yet, though the CFTC has actively used emergency powers to block state enforcement. Washington's constitution prohibited gambling on state lands when the state was founded in 1889, and the state continues to regulate gambling activities.
