The Commodity Futures Trading Commission (CFTC) has intensified its legal battle against states over prediction market regulation, with CFTC Chairman Michael S. Selig warning that the agency will pursue litigation against any state challenging federal authority. According to the latest filing, Selig stated that "some states continue to pursue ever-escalating, illegal enforcement actions against CFTC-regulated exchanges, despite rulings from multiple courts halting those efforts." The CFTC has filed lawsuits against multiple states, including New York, Arizona, Connecticut, and Illinois, while working with the Department of Justice (DOJ) in broader challenges against state enforcement efforts targeting prediction markets. This represents a significant escalation from previous legal actions, with the CFTC now coordinating federal efforts to cement control over prediction market regulation.
The CFTC argues that federal law gives it exclusive power over prediction markets listed by registered exchanges, with the agency asserting that Congress has entrusted the CFTC with the sole authority to regulate commodity derivatives markets, including prediction markets. As reported by Crypto.com and BeInCrypto, CFTC Chair Michael Selig stated that CFTC-registered exchanges have faced an onslaught of state lawsuits seeking to limit Americans' access to event contracts and undermine the CFTC's sole regulatory jurisdiction over prediction markets. The April 24 filing outlined that applying state gambling laws to swaps traded on CFTC-regulated markets would conflict with federal law and disrupt the uniform regulatory system established by Congress. Selig warned that such actions could reintroduce fragmented oversight across jurisdictions, emphasizing that "To any state that seeks to nullify federal law and seize authority over these markets, I say again: we will see you in court."
New York has filed lawsuits against major cryptocurrency exchanges, including Coinbase and Gemini, claiming their prediction market products violated local gambling laws. According to TradingView News, New York AG alleges that Coinbase Financial Markets ran unlicensed prediction markets deemed gambling, with contracts accessible to users aged 18-20 despite a 21+ mobile sports betting age rule. The state had also targeted Kalshi over parts of its sports-related contracts, demonstrating a broader crackdown on prediction market activities. New York's regulators previously hit registered platforms with cease-and-desist letters and civil suits, adding to the mounting pressure on federally regulated prediction market venues. The state's enforcement actions represent part of a broader pattern of state intervention that the CFTC is now actively challenging through coordinated legal action.
A group of 37 states and Washington, D.C. filed an amicus brief supporting Massachusetts in its case against Kalshi. As reported by Crypto.com, these states urged the court to reject Kalshi's claim that federal law lets it offer sports contracts nationwide without state approval. The states argued that federal financial law was not meant to legalize sports betting and that state rules help manage licensing, age checks, fraud controls, and gambling addiction safeguards. Courts have already intervened in some cases, including granting a temporary order blocking an Arizona criminal case against prediction market platforms, providing some relief to the industry. However, the CFTC's coordinated legal offensive suggests that state challenges continue despite judicial interventions.
The case represents a wider clash between federal market rules and state gambling oversight, with the CFTC's latest actions signaling an intensified federal push to halt state-level actions and reinforce a single regulatory framework. According to Crypto.com and BeInCrypto, prediction platforms argue that their contracts fall under federal commodity laws, while states maintain that sports and betting activity remain under their control. Kalshi and Polymarket together face more than a dozen state and tribal challenges over sports and political event contracts. Arizona, Connecticut, Illinois, Massachusetts, Nevada, and New York have all moved against prediction market firms through lawsuits, cease-and-desist letters, and regulatory orders tied to sports and event contracts. The CFTC has also filed an amicus brief in the Ninth Circuit Court of Appeals defending its preemption argument before appellate judges, with decisions from federal courts in New York and Massachusetts potentially shaping national rules for this fast-growing industry.
