CFTC Escalates Battle Against States Over Prediction Market Regulation

In its latest move to assert nationwide regulatory control over prediction market firms, the U.S. Commodity Futures Trading Commission has filed a lawsuit against New York. This action follows the state's own lawsuit against Coinbase and Gemini, alleging their prediction market contracts violate state gambling laws, as well as a similar action against Kalshi last year. The CFTC maintains that federal law grants it exclusive jurisdiction over commodity futures, options, and swaps traded on federally regulated exchanges, thereby preempting state law. However, 37 state attorneys general have signed a legal brief arguing that this stance threatens states' ability to protect their citizens. The CFTC has also sued Arizona, Connecticut, and Illinois, claiming event contracts fall under federal jurisdiction as derivatives instruments. CFTC Chairman Mike Selig has emphasized the importance of this initiative, stating that CFTC-registered exchanges face numerous state lawsuits aiming to limit access to event contracts and undermine the CFTC's regulatory authority. In response, New York Attorney General Letitia James and Governor Kathy Hochul stated they are enforcing state gambling laws to protect consumers, asserting that the administration prioritizes corporations over New Yorkers' interests.