The U.S. Commodity Futures Trading Commission (CFTC) has escalated its push to have Federal authority over prediction markets, by filing lawsuits against Illinois, Arizona, and Connecticut as Illinois shuts down several betting institutions.
State oversteps authority on CFTC-regulated market
In a complaint filed on Thursday in the Federal court in Illinois, the agency accused state officials, including Attorney General Kwame Raoul, of overstepping their authority by attempting to shut down a ‘federally regulated designated contract markets or DCMs’ platform it considers federally regulated.
It is a category the CFTC says includes prediction platforms such as Kalshi, Crypto.com, and Polymarket.
According to the filing, Illinois issued cease-and-desist orders over the past year targeting platforms under the CFTC, arguing they violate state-level gaming and gambling laws, particularly around event-based and sports-related contracts.
“Illinois’ attempt to shut down federally regulated DCMs intrudes on the exclusive federal scheme Congress designed to oversee national swaps markets,” the agency argued in the complaint.
The lawsuits against Arizona and Connecticut, announced later the same day, are indicating a broader effort by the CFTC to push back against what one could clarify as state-level intervention in prediction markets.
Crypto prediction markets challenged
CFTC Chair Michael Selig said the agency would continue defending what it calls its “exclusive jurisdiction,” warning that the state regulators forcing conflicting or excessive rules will not succeed in their attempts, as the authority will continue to protect companies and traders.
“This is not the first time states have tried to impose inconsistent and contrary obligations on market participants, Selig said, “but Congress specifically rejected such a fragmented patchwork of state regulations because it resulted in poorer consumer protection and increased risk of fraud and manipulation.”
In February, the agency backed Crypto.com’s prediction market division in a separate dispute with the state of Nevada, reinforcing its stance that these platforms operate within a federal regulatory perimeter.
The judge had initially ruled that sports-event contracts did not fall within the jurisdiction of the CFTC but the state of Nevada’s gaming laws. However, Crypto.com appealed that decision.
Arizona has also filed criminal charges against Kalshi, accusing them of operating an illegal gambling business and unlawfully allowing users to bet on elections and sports.
State authorities, however, are pushing back with litigation. Officials in Illinois argue that the platforms resemble unlicensed gambling products that could cause risks to consumers, particularly in the absence of state-level interventions.
The debate continues
Congressional Democrats recently introduced legislation banning prediction markets related to politics, sports and war.
The list of defendants included the governors and attorneys general from three states: Katie Hobbs and Kris Mayes from Arizona, Ned Lamont and William Tong from Connecticut, and JB Pritzker and Kwame Raoul from Illinois.
