The Commodity Futures Trading Commission (CFTC) has filed a lawsuit against New York to prevent the state from applying its gambling laws to federally regulated prediction market platforms, escalating a clash over who has the authority to oversee these products.
In a complaint filed in the US District Court for the Southern District of New York, the CFTC argued that federal law gives it exclusive authority over these markets, asking the court for a declaratory judgment and permanent injunction against New York’s enforcement actions.
“CFTC-registered exchanges have faced state lawsuits seeking to limit Americans’ access to event contracts and weaken the CFTC’s sole regulatory jurisdiction over prediction markets,” said CFTC Chairman Michael Selig.
Earlier this week, New York filed a lawsuit against Coinbase and Gemini, claiming their offerings violated state gambling regulations. The state had previously targeted Kalshi and ordered it to freeze parts of its sports-related contracts.
Connected: Kalshi, Polymarket among 27 forecasting platforms banned in Brazil
States say federal law doesn’t legalize sports betting
On Friday, a coalition of 37 states and Washington, D.C., filed an amicus brief supporting Massachusetts in the case against Kalshi, urging the Massachusetts Supreme Court to reject Kalshi’s argument that federal law allows him to offer sports betting nationwide without having to comply with state regulations.
Kalshi argues that its betting products are “swaps” regulated by a federal agency under a 2010 financial law. States say the law was never intended to legalize or regulate sports betting and that it does not explicitly eliminate state authority, which has historically regulated gambling.
37 states supported Massachusetts in the amicus brief. Source: New York Government
States also argue that removing state oversight would weaken security. State laws currently handle licensing, age limits, fraud prevention, and gambling addiction, which are areas not covered by federal financial regulation.
Connected: US appeals court upholds New Jersey enforcement halt against Kalshi
States step up crackdown on prediction markets
State officials have taken a more aggressive stance against prediction markets in recent months, issuing cease-and-desist letters and taking legal action against companies offering prediction contracts.
States such as Arizona, Connecticut and Illinois are seeking to enforce gambling laws against prediction platforms. Earlier this month, a Nevada judge extended a ban preventing Kalushi from offering event-based contracts in the state, siding with regulators who argue the products are tantamount to unlicensed gambling.
magazine: How to fix suspected insider trading on Polymarket and Kalshi
