The US Commodity Futures Trading Commission, in conjunction with the Department of Justice, has initiated a lawsuit against Illinois, Arizona, and Connecticut, as well as various state officials, over their attempts to restrict prediction market operators. Multiple states, including Illinois, have issued cease-and-desist letters to certain prediction market providers, asserting that these companies are offering sports betting products subject to state regulation. However, the CFTC maintains that prediction markets constitute swaps products, which fall under the federal Commodity Exchange Act and thus come under its exclusive jurisdiction.
The lawsuit reiterates this stance, stating that Illinois's actions 'intrude upon' the CFTC's authority and that federal law supersedes state regulations in this matter. According to the filing, 'event contracts are financial instruments that enable parties to trade based on predictions about the occurrence of future events, which may pertain to economics, elections, climate, sports, or any other potential financial, economic, or commercial consequence.' A spokesperson for Illinois Governor J.B. Pritzker responded, saying, 'The Trump Administration is supporting companies that facilitate well-documented and lucrative insider trading schemes, generating record profits while exposing Illinois residents to gaming products lacking basic consumer protections and oversight.
This is a clear attempt to circumvent state jurisdiction and prioritize profits over consumers. Illinois will continue to fight for the protection of its consumers.' Under Chairman Mike Selig, the CFTC has consistently argued that prediction markets are subject to federal regulation, even as many of these companies expand their offerings to include bets on sporting events.
Both Republican and Democratic states have pushed back against this stance. Last month, Nevada's Gaming Control Board obtained a temporary restraining order against Kalshi, with a hearing scheduled for Friday. Selig stated, 'This is not the first instance of states attempting to impose inconsistent and conflicting obligations on market participants. However, Congress specifically rejected such a fragmented approach to state regulations due to its potential to compromise consumer protection and increase the risk of fraud and manipulation.' The CFTC is set to participate in an appeals court hearing before the Ninth Circuit later this month, in a consolidated case involving the North American Derivatives Exchange, Kalshi, and Robinhood.