US Regulator Takes Wisconsin to Court Over Dispute on Prediction Market Oversight

The Commodity Futures Trading Commission has added Wisconsin to its growing list of defendants in a series of lawsuits aimed at solidifying its jurisdiction over prediction markets, which are offered by companies such as Kalshi and Crypto.com. This development comes as several states, including Wisconsin, have taken action against these businesses, alleging that they are violating local gaming laws by facilitating betting on their platforms. However, the Chairman of the CFTC, Mike Selig, has been leading a counter-effort, arguing that his agency has sole authority over the trading of event contracts, which he views as a new form of derivatives activity that falls under the CFTC's purview. Recently, Wisconsin filed a lawsuit against Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, accusing them of operating unlicensed gambling operations within the state, mirroring similar claims made by other states. In response, the CFTC has filed a lawsuit in the U.S. District Court for the Eastern District of Wisconsin, with Chairman Selig stating that the aim is to send a clear message: "If you interfere with federal law regulating financial markets, we will take legal action against you." This move follows a similar lawsuit filed by New York against Coinbase and Gemini over their prediction markets businesses, to which the CFTC responded with its own lawsuit against the state. According to Ryan VanGrack, Coinbase's Vice President of Legal and Head of Global Litigation, "The CFTC's lawsuits, including those in New York and Wisconsin, draw a clear line in the sand. By taking steps to block state overreach, the commission has sent an unmistakable signal that the era of jurisdictional uncertainty is over." Arizona is also pursuing a criminal case against Kalshi, but a court has temporarily halted the prosecution, suggesting that federal law is likely to preempt state gambling laws, thus bolstering the CFTC's argument.