The US Commodity Futures Trading Commission, in conjunction with the Department of Justice, has initiated a lawsuit against Illinois, Arizona, Connecticut, and various state officials. This action is in response to the states' efforts to shut down operators of prediction markets. The states in question, including Illinois, had issued cease-and-desist letters to certain prediction market providers, asserting that these companies were offering sports betting products that should be subject to state regulation. However, the CFTC maintains that prediction markets are offering swap products, which fall under the federal Commodity Exchange Act and thus are under the CFTC's exclusive jurisdiction.
The lawsuit filed by the CFTC argues that Illinois's actions are an intrusion upon the CFTC's authority and that federal law supersedes state regulations in this matter. According to the filing, "event contracts are a type of derivative instrument that allows parties to trade based on their predictions regarding the occurrence of future events, which may pertain to economics, elections, climate, sports, or any other event with potential financial, economic, or commercial implications." A spokesperson for Illinois Governor J.B. Pritzker released a statement saying, "The Trump Administration is prioritizing the interests of companies involved in well-documented and lucrative insider trading schemes. These firms are generating substantial profits while exposing Illinois residents to gaming products that lack basic consumer protections and oversight.
This is a clear attempt to circumvent the state's authority and prioritize profits over consumer welfare. Illinois will not back down and will continue to fight for the protection of its consumers." The CFTC, particularly under the leadership of Chairman Mike Selig, has consistently argued that prediction markets are subject to federal regulation. This stance has been taken even as many of these companies have expanded their offerings to include bets on sporting events.
States, regardless of their political affiliations, have pushed back against this assertion. Nevada's Gaming Control Board recently obtained a temporary restraining order against Kalshi, with a hearing scheduled to take place. Chairman Selig stated, "This is not the first instance of states attempting to impose inconsistent and conflicting obligations on market participants. However, Congress has specifically rejected such a fragmented approach to state regulations due to its potential to result in inadequate consumer protection and increased 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.