The US Commodity Futures Trading Commission, in conjunction with the Department of Justice, has initiated a lawsuit against the states of Illinois, Arizona, and Connecticut, as well as various state officials, regarding their attempts to shut down providers of sports prediction markets. The states in question, including Illinois, had previously issued cease-and-desist letters to certain prediction market operators, asserting 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, in fact, swap products that fall under the purview of the federal Commodity Exchange Act, and thus, are exclusively regulated by the CFTC. The lawsuit filed by the CFTC 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 derivative instruments that enable parties to trade based on their predictions of future events, which may pertain to economics, elections, climate, sports, or any other matter with potential financial, economic, or commercial implications. A spokesperson for Illinois Governor J.B.
Pritzker responded, stating, 'The Trump Administration is prioritizing the interests of companies involved in well-documented and lucrative insider trading schemes over consumer protection. These firms are generating record profits while exposing Illinois residents to gaming products with inadequate consumer safeguards 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 the leadership of Chairman Mike Selig, the CFTC has maintained that prediction markets are subject to federal regulation, even as many of these companies expand their offerings to include bets on sporting events. This stance has been met with resistance from states, across party lines.
Recently, the Nevada Gaming Control Board obtained a temporary restraining order against Kalshi, with a hearing scheduled for later this month. In a statement, Selig said, 'This is not the first instance of states attempting to impose inconsistent and conflicting obligations on market participants.
However, Congress has explicitly rejected such a fragmented approach to state regulations, recognizing that it results in diminished consumer protection and increased risks 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.