Federal regulator sues 3 states over prediction market restrictions

The Commodity Futures Trading Commission (CFTC) is suing Arizona, Connecticut and Illinois over the states’ efforts to place restrictions on prediction markets operating within their borders, underscoring the escalating fight between state and federal regulators over the platforms.

In the trio of lawsuits filed Thursday, the CFTC asked the courts to determine that the agency’s rules preempt state gambling laws and declare the measures unlawful.

“The CFTC will continue to safeguard its exclusive regulatory authority over these markets and defend market participants against overzealous state regulators,” CFTC Chair Michael Selig said in a statement.

“This is not the first time states have tried to impose inconsistent and contrary obligations on market participants, 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,” he continued.

The CFTC took aim at efforts by the states to block prediction markets within their borders. All three states have sent cease-and-desist letters to the platforms, warning they are running afoul of state gambling laws. Arizona has also brought criminal charges against Kalshi for allegedly operating an illegal gambling business in the state.

In mid-February, just months after his Senate confirmation, Selig vowed to challenge any state attempts to regulate prediction markets, arguing that federal watchdogs have exclusive jurisdiction.

While the CFTC previously filed an amicus brief in a Nevada case, the latest lawsuits mark the first independent legal action by the agency. It contends that the states “misapprehend both the nature of these contracts and the federal regulatory framework.”

The agency considers the wagers that consumers make on prediction markets to be event contracts, a type of financial contract that falls under its jurisdiction, while the states view these wagers as equivalent to traditional gambling.

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