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 comes after New York recently sued cryptocurrency exchanges Coinbase and Gemini, alleging that their prediction market contracts breached state gambling laws. The state had also previously targeted Kalshi, demanding that it discontinue its sports wagering platform. The CFTC argues that, as the federal derivatives regulator, it has exclusive jurisdiction over commodity futures, options, and swaps traded on federally regulated exchanges, thereby preempting state law. However, 37 state attorneys general, including New York's Letitia James, have countered with a legal brief arguing that this stance undermines states' ability to protect their citizens. The CFTC has also sued Arizona, Connecticut, and Illinois over similar issues, claiming that event contracts fall under federal jurisdiction as derivatives instruments. Chairman Mike Selig has made this a key initiative, stating that CFTC-registered exchanges face numerous state lawsuits aiming to limit access to event contracts and undermine the CFTC's regulatory jurisdiction. In response to the lawsuit, New York Attorney General James and Governor Kathy Hochul asserted that they are enforcing state laws to protect consumers from gambling violations, emphasizing that they will hold accountable any platforms, including prediction markets, that breach these laws.