US Regulator Takes New York to Court Over Prediction Market Dispute

The US Commodity Futures Trading Commission has filed a lawsuit against New York, marking its latest move to assert federal regulatory control over prediction market firms. This development comes after New York took legal action against cryptocurrency exchanges Coinbase and Gemini, alleging that their prediction market contracts breached state gambling laws. Similarly, the state had previously targeted Kalshi, demanding that it discontinue its sports betting platform. The CFTC, as the primary federal derivatives regulator, maintains that states lack the authority to interfere with these firms, citing federal law that grants it exclusive jurisdiction over commodity futures, options, and swaps traded on federally regulated exchanges. Consequently, state law is effectively superseded, according to the regulator and the burgeoning industry it seeks to protect. However, a coalition of 37 state attorneys general, including New York's Letitia James, has signed a legal brief arguing that Kalshi's preemption theory poses a threat to states' ability to safeguard their citizens in this area. CFTC Chairman Mike Selig has made this a top priority since assuming office four months ago, with the agency also suing Arizona, Connecticut, and Illinois, claiming that event contracts fall under federal jurisdiction as derivatives instruments. Chairman Selig stated that CFTC-registered exchanges have faced numerous state lawsuits seeking to restrict access to event contracts and undermine the CFTC's regulatory authority over prediction markets. In response, New York Attorney General James and Governor Kathy Hochul released a statement emphasizing their commitment to enforcing state gambling laws, asserting that the administration prioritizes corporate interests over consumer protection and the well-being of New Yorkers. They vowed to hold accountable gambling platforms, including prediction markets, that violate state laws and expressed their intention to continue defending their laws in court.