CFTC Targets Prediction Markets in Three States

(AsiaGameHub) –   The conflict between federal regulators and state authorities escalated on Thursday when the Commodity Futures Trading Commission (CFTC) initiated a first-of-its-kind legal campaign across multiple states to prevent local officials from classifying prediction markets as unauthorized gambling ventures.

Filed in federal courts in Arizona, Connecticut, and Illinois, all three lawsuits contest those states’ actions to prohibit event contracts, including sports-related ones, on exchanges overseen by the CFTC.

In a press release detailing the moves, CFTC Chairman Michael Selig emphasized the agency’s commitment to protecting its domain, stating:

The CFTC will continue to protect its exclusive regulatory control over these markets and shield participants from excessive state regulation. States have previously attempted to enforce conflicting and contradictory rules on market participants, but Congress explicitly rejected such a disjointed system of state oversight because it led to weaker consumer safeguards and greater potential for fraud and manipulation.

The lawsuits contend that the Commodity Exchange Act grants the CFTC sole authority over event contracts traded on federally supervised designated contract markets. They allege Arizona, Connecticut, and Illinois are illegally attempting to apply gambling regulations to products the agency asserts are covered by federal commodities law.

Selig also used X to clarify the agency’s position, noting the suits were launched to “reassert our statutory authority” following state officials’ imposition of “inconsistent and contrary obligations” on prediction markets registered with the CFTC.

The CFTC’s move to sue the states was not unexpected. In an X video from February, Selig indicated the agency would adopt a more forceful posture in the prediction market dispute, declaring:

To anyone looking to contest the Commission’s authority regarding these contracts, I want to be unambiguous: we’ll see you in court.

Arizona Case Centers on Criminal Charges

Arizona has pursued the most aggressive stance against prediction markets, bringing criminal charges against Kalshi in March.

In its new federal complaint, the CFTC cites Arizona’s criminal prosecution of Kalshi as proof of the state’s extensive efforts to control prediction markets.

The complaint states Arizona first issued Kalshi a cease-and-desist letter in May 2025, followed by a 20-count criminal filing in March that accused the exchange of running an illicit gambling operation and placing bets on elections.

The federal lawsuit alleges Arizona is seeking to “criminalize markets” that Congress placed under the CFTC’s exclusive purview. It employs the details of Arizona’s case against Kalshi to demonstrate the direct clash between state gambling statutes and federal derivatives oversight.

The filing notes specific contentious allegations, such as wagers linked to the 2028 presidential election, the 2026 Arizona gubernatorial race, individual player performances, and the potential enactment of the SAVE Act. It argues this shows Arizona is trying to enforce state gambling law on event contracts the agency maintains are regulated by federal commodities law.

Connecticut & Illinois Cases Focus on Sports Wagering Claims

Connecticut and Illinois have employed a different strategy than Arizona in their attempts to control prediction markets. Rather than filing criminal charges, both states have sent cease-and-desist orders to entities regulated by the CFTC.

The two states describe the activity with minor differences: Connecticut labels it “unlicensed online gambling, more specifically sports wagering,” while Illinois deems it illegal “sports wagering” or “gambling” under the Illinois Sports Wagering Act, Criminal Code, and Administrative Code.

However, in the new federal complaints, the CFTC asserts both states are fundamentally doing the same thing: classifying event contracts on federally regulated exchanges as gambling products that must comply with state law.

The agency maintains this is precisely what the Commodity Exchange Act forbids, as it gives the CFTC exclusive control over those markets and overrides enforcement at the state level.

The complaints argue that gambling enforcement varying by state would upset the nationally consistent framework Congress established for derivatives markets.

The Connecticut complaint states that applying state gambling laws to federally regulated exchanges would produce the very regulatory “patchwork” Congress aimed to avoid. The Illinois filing adds that state enforcement would “undermine that uniformity, thwart Congress’s scheme, and intrude on Plaintiffs’ exclusive jurisdiction.”

Arizona Case Quickly Folded Into Existing Kalshi Fight

The CFTC’s Arizona lawsuit is already merging with a related legal fight. Sports betting and gaming attorney Daniel Wallach reported on X that U.S. District Judge Michael T. Liburdi has issued an order combining the CFTC’s new suit against Arizona officials with Kalshi’s ongoing case against the state.

The combined case will move forward under Kalshi’s lead docket number. This means one of the CFTC’s three new legal challenges is already being incorporated into the larger judicial dispute over whether states can classify federally regulated event contracts as gambling.

Liburdi stated consolidation was warranted because the two cases involve a “common question of law or fact” concerning Arizona’s power to regulate these markets.

This step positions Arizona to be among the first jurisdictions where courts evaluate the CFTC’s argument that federal law supersedes state gambling enforcement actions against prediction markets.