US Regulator Expands Lawsuit Against States Over Prediction Market Oversight

In its latest move to assert nationwide regulatory control over prediction market firms, the US Commodity Futures Trading Commission has filed a lawsuit against New York. This action follows New York's recent lawsuit against Coinbase and Gemini, alleging their prediction market contracts breach state gambling laws. The state had previously targeted Kalshi, demanding the cessation of its sports wagering platform. The CFTC, as the federal derivatives regulator, maintains that states lack the authority to interfere with these firms, citing federal law that grants the agency exclusive jurisdiction over commodity futures, options, and swaps traded on federally regulated exchanges. This stance effectively preempts state law, aligning with the positions of both the regulator and the growing industry it seeks to protect. However, a countermove saw 37 state attorneys general, including New York's Letitia James, sign a legal brief supporting the argument that Kalshi's preemption theory jeopardizes states' long-standing ability to safeguard their citizens in this area. Under Chairman Mike Selig's leadership, the CFTC has made this initiative a priority, also suing Arizona, Connecticut, and Illinois over event contracts deemed derivatives instruments within federal jurisdiction. Chairman Selig noted that CFTC-registered exchanges face numerous state lawsuits aiming to restrict access to event contracts and undermine the CFTC's sole regulatory authority over prediction markets.