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, in response to their attempts to shut down operators of prediction markets. Several states, including Illinois, have issued cease-and-desist letters to certain prediction market providers, asserting that these companies are offering sports betting products that fall under state jurisdiction. However, the CFTC maintains that prediction markets are essentially swaps, which are subject to federal regulation under the Commodity Exchange Act, thus falling exclusively under the CFTC's purview. The lawsuit filed by the CFTC reiterates this stance, arguing that Illinois's actions 'intrude upon' the CFTC's regulatory role 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 predictions about future events, including those related to sports, economics, or other areas of potential financial consequence. A spokesperson for Illinois Governor J.B.
Pritzker responded, stating, 'The Trump Administration is prioritizing the interests of companies involved in lucrative insider trading schemes over consumer protection. These firms are generating substantial profits while exposing Illinois residents to gaming products without basic consumer safeguards or 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 consistently argued that prediction markets are subject to federal regulation, even as these companies expand their offerings to include sports betting.
States, regardless of political affiliation, have pushed back against this stance. Recently, the Nevada Gaming Control Board obtained a temporary restraining order against Kalshi, with a hearing scheduled for later this month.
Chairman Selig stated, 'This is not the first instance of states attempting to impose inconsistent obligations on market participants. However, Congress has explicitly rejected such a fragmented approach to state regulations due to concerns over decreased 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.