A lawsuit has been filed by the US Commodity Futures Trading Commission and the Department of Justice against the states of Illinois, Arizona, and Connecticut, as well as various state officials, in response to the states' efforts to restrict prediction market providers. The states in question, including Illinois, had issued cease-and-desist letters to certain prediction market operators, arguing that these companies were offering sports betting products that should be subject to state regulation.
However, the CFTC has consistently argued that prediction markets are offering swap products, which fall under the federal Commodity Exchange Act and are therefore subject to the CFTC's exclusive jurisdiction. The CFTC's lawsuit asserts that Illinois's actions are an infringement on the CFTC's authority and that federal law supersedes state regulations in this matter. According to the lawsuit filing, event contracts are a type of derivative instrument that enables parties to trade based on their predictions of future events, which can include sports, elections, or other events with potential financial consequences. In response to the lawsuit, a spokesperson for Illinois Governor J.B.
Pritzker stated, "The Trump Administration is prioritizing the interests of companies involved in lucrative insider trading schemes over those of Illinois consumers. These companies are generating substantial profits while exposing our residents to gaming products that lack basic consumer protections and oversight.
This is a clear attempt to circumvent state jurisdiction and prioritize profits over consumer protection. Illinois will continue to fight for the protection of its consumers." The CFTC, under the leadership of Chairman Mike Selig, has maintained that prediction markets are subject to federal regulation, even as many of these companies expand their offerings to include sports betting. However, states have pushed back against this assertion, with Nevada's Gaming Control Board recently securing a temporary restraining order against Kalshi. Chairman Selig stated, "This is not the first instance of states attempting to impose conflicting obligations on market participants.
Congress has specifically rejected such a fragmented approach to state regulations, as it results in diminished consumer protection and increased risk of fraud and manipulation." The CFTC is scheduled 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.