CFTC Files Lawsuits Against Three States Over Prediction Market Regulation

The Commodity Futures Trading Commission (CFTC) has initiated legal action against three states—Illinois, Connecticut, and Arizona—along with their respective gaming regulators. The lawsuits, filed by the CFTC and the U.S. Department of Justice, challenge state attempts to regulate prediction markets, which the federal agency claims fall under its exclusive jurisdiction. In 2025, these states sent cease and desist letters to prediction platforms like Kalshi and Polymarket, alleging violations of state gambling laws and licensing requirements. The CFTC asserts that it was the first to officially recognize event contracts in 1992 and that Congress has granted it sole authority to regulate these markets under the Commodity Exchange Act. The agency's lawsuit against Illinois specifically targets the Illinois Gaming Board for misclassifying event contracts as 'wagers' or 'sports betting' instead of asset swaps. The CFTC argues that such misclassification undermines federal oversight and could destabilize market participants. CFTC Chairman Mike Selig emphasized the risks posed by state regulators' actions, stating that their 'overzealous attempts' have created uncertainty and threaten market stability. The lawsuits come amid broader legal scrutiny of prediction markets, with 11 states pursuing legal action against these platforms. Congressional lawmakers are also considering legislative proposals to ban sports-related event contracts and restrict participation in politically sensitive prediction markets. The legal battle highlights the growing tension between federal and state authorities over the regulation of emerging financial technologies. Prediction market platforms, such as Kalshi and Polymarket, operate in a rapidly evolving regulatory landscape, where conflicting interpretations of jurisdiction could impact market structure and investor confidence. The outcome of these lawsuits may set a precedent for how prediction markets are governed in the future.