CFTC Sues 3 Arizona, Illinois, Connecticut Over Prediction Market Crackdowns

By Bill Speros

Apr 2nd, 2026 1:53 PM EDT

The Commodity Futures Trading Commission took the unprecedented step Thursday of suing Arizona, Connecticut, and Illinois. The CFTC seeks to block those states from enforcing laws against federally regulated prediction market operators.

The lawsuits, filed jointly by the CFTC and the Department of Justice, are the latest escalation in an ongoing dispute over who has the authority to oversee sports-related prediction markets — with states arguing the platforms amount to illegal gambling and federal regulators insisting they fall under federal derivatives law.

The complaints name CFTC-registered prediction market platforms including Kalshi, Crypto.com, and Polymarket U.S.. It argues state cease-and-desist letters make it impossible for the agency to fulfill its role as a regulator.

"The CFTC will continue to safeguard its exclusive regulatory authority over these markets and defend market participants against overzealous state regulators," said CFTC Chairman Michael Selig in a statement accompanying the filings.

The core legal argument centers on federal preemption. The agency contends that the Commodity Exchange Act was specifically designed to prevent a "patchwork" of state-by-state rules for designated contract markets, and that allowing state gambling laws to apply would undermine that uniformity.

'Unprecedented' CFTC Prediction Markets Move

Former CFTC General Counsel Rob Schwartz called the actions "unprecedented" in a social media post Thursday. He claimed no prior CFTC lawsuit had sought to block states from applying their gambling laws to prediction markets. Schwartz warned that states which have previously sent cease-and-desist letters could face similar legal exposure. That includes at least 10 other states have taken comparable action against prediction market operators.

The lawsuits arrive amid a chaotic legal landscape that has produced contradictory rulings across the country. More than 20 federal lawsuits have been filed in a growing battle over regulatory authority. A Tennessee federal judge sided with Kalshi in February. An Ohio judge ruled weeks later that sports event contracts must follow state gaming regulations.

Arizona recently filed the first criminal charges against Kalshi, alleging it was operating an illegal gambling business. Kalshi denied wrongdoing and called the misdemeanor charges "paper thin." Nevada's Gaming Control Board has also secured a temporary restraining order against the company, with a hearing scheduled for Friday.

Prediction markets are platforms where users trade contracts tied to the outcome of events ranging from politics to sports. They have grown rapidly since Kalshi won a federal court ruling in 2024 allowing election-related contracts. The CFTC first designated a prediction market as subject to its regulation in 2004. The sector drew modest attention before exploding in volume and investor interest following the 2024 presidential election.

The agency has been moving to formalize its authority. On March 12, the CFTC issued an Advanced Notice of Proposed Rulemaking seeking public comment on the regulation of event contract derivatives, with public comments due by April 30.

Selig has been a vocal champion of the industry's federal status. He previously filed an amicus brief supporting Kalshi in its Nevada lawsuit. He has backed the platforms' legal arguments in online posts. Under his leadership, the CFTC dropped its Biden-era appeal challenging election contracts on Kalshi. Last week, he announced a task force to advance rules that "foster innovation" in prediction markets.

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