The Commodity Futures Trading Commission (CFTC) has filed a federal lawsuit against Kentucky, seeking to block the state from enforcing gaming laws against federally regulated prediction market operators. As reported by crypto.news, the case names Kentucky Governor Andrew Beshear, Attorney General Russell Coleman, Department of Revenue Commissioner Thomas B. Miller, and the Kentucky Horse Racing and Gaming Corporation as defendants. The CFTC argues that Kentucky's actions conflict with the Commodity Exchange Act, which gives the regulator authority over futures, options, and swaps traded on federally regulated exchanges. CFTC Chair Michael Selig stated that Kentucky is the latest state attempting to shut down federally-regulated event contracts, with the agency seeking declaratory and injunctive relief from the court. According to the CFTC, Kentucky's actions seek heavy monetary penalties against targeted operators and are designed to pressure platforms into leaving Kentucky entirely.
Representative Bryan Steil introduced the Stop Lawmakers from Predicting Act on June 18, targeting congressional participation in prediction markets. According to reports from The Hill and BeInCrypto, the Wisconsin Republican chairs the House Administration Committee and framed the legislation as addressing mounting concerns about insider trading on these platforms. The bill specifically bars members of Congress, their spouses, and dependent children from wagering on government policy and political outcomes through prediction markets. The legislation establishes significant financial penalties for violations, with violators paying $2,000 or 10% of the transaction value, whichever is greater, and forfeiting any net gains from the bet.
Prediction market platforms have implemented new measures in response to the legislative push and regulatory challenges. As reported by The Hill and BeInCrypto, Kalshi rolled out risk scoring, employment checks, and whistleblower channels in June to deter insiders from acting on privileged information. Polymarket brought in Chainalysis to build an on-chain surveillance system. The platforms face ongoing ethical scrutiny over market topics touching on human suffering, with Polymarket removing betting markets on US service member rescues after lawmaker criticism. The dispute centers on whether sports-related event contracts fall under federal derivatives law or state gambling law, with states arguing that products look like sports betting and need local licenses.
The CFTC lawsuit also challenges Kentucky's 14.25% excise tax on prediction market transaction fees and contract notional value, which the agency says makes it impossible for prediction markets to operate in Kentucky. According to crypto.news, Kentucky sued Kalshi, Polymarket, and partners tied to Coinbase, Robinhood, and Webull on June 17, arguing the companies offered sports event contracts without a Kentucky gaming license. The state accused the platforms of offering few or no resources for users who may need gambling help. Kentucky is now the ninth state in the CFTC's prediction market jurisdiction fight, joining Rhode Island, Wisconsin, Minnesota, New York, Arizona, Connecticut, and Illinois in legal disputes over federal versus state oversight of prediction markets. As reported by crypto.news, the state has also passed legislation that would impose the 14.25% excise tax on prediction market operators starting January 1, 2027, with the accrual method used for calculating tax owed.
At the recent Manifest prediction market festival in Berkeley, industry philosophers expressed deep concerns about the legislative push. According to The Hill and BeInCrypto, David Bensoussan, who has made $1.6 million in profits on the platform, questioned the connection between truth-seeking mechanisms and sports betting. The platforms have made significant inroads with friendly administrations and partnerships with news organizations like Fox and CNN, but sports betting represents a significant portion of their business. Sports accounts for roughly 80% of trading volume on Kalshi and 39% on Polymarket since July 2024, making the platforms vulnerable to potential bans. The sector continues to draw large firms despite growing court fights, with Meta reportedly working on Arena, a points-based prediction market app, following interest from firms such as Charles Schwab, Cboe, Kalshi, and Polymarket.
