First CFTC lawsuits against state betting markets regulation
States accuse Kalshi, Robinhood, and others of allowing unlicensed bets
Arizona and Illinois comments added, paragraphs 10-11
by Jonathan Stempel
The Trump administration filed suit against Arizona, Connecticut, and Illinois on Thursday to stop what it calls their illegal efforts to regulate prediction markets because they could violate state gambling laws.
The states’ attempts to end companies’ efforts such as Kalshi, Polymarket, Crypto.com, and Robinhood
for providing “event contracts” have violated the EXCLUSIVE authority of the Commodity Futures Trading Commission
to regulate national swap markets, the government says.
Event contracts allow people to trade based on the expected outcomes of various events, such as sports and elections.
These lawsuits are the first brought by the CFTC to prevent state gaming regulators from overseeing prediction market operators.
The CFTC opposed sending cease and
desist letters to designated contract markets such as Kalshi, Polymarket, and Crypto.com, as well as to futures traders such as Robinhood, after regulators had reasons to believe they were violating state gambling laws by allowing sports betting without a license. Arizona also filed criminal charges against Kalshi.
In a statement, CFTC Chairman Michael Selig said the regulator “will continue to safeguard its EXCLUSIVE regulatory authority over these markets and defend
market participants against overzealous state regulators.”
DEMOCRATIC-LED STATES SUED
The defendants include the governors and attorneys general of the respective states: Katie Hobbs and Kris
Mayes in Arizona, Ned Lamont and William Tong in Connecticut, JB Pritzker and Kwame Raoul in Illinois.
All are Democrats. State gaming regulators
were also named as defendants. U.S. President Donald Trump is a Republican.
“The Trump administration is recycling industry arguments
that have been rejected by district courts throughout the country,” said William Tong in a statement. “We will aggressively defend common-sense consumer protections in Connecticut.”
A spokesman for JB Pritzker accused the Trump administration of bypassing Illinois jurisdiction and
“siding” with prediction market businesses that prioritize profits “while exposing Illinois residents to unregulated gaming products without basic consumer protection or oversight.”
Kris Mayes’ office declined to comment.
U.S. CLAIMS STATES UNDERMINE FEDERAL LAW
Arizona, Connecticut, and Illinois have legalized
sports betting, like most U.S. states and
Washington.
But many states and tribal gaming authorities have sought to exclude prediction markets, arguing they violate the prohibition on people under 21 placing bets.
The federal government said Connecticut and
Illinois “misunderstand” the nature of event contracts, which allows them to regulate and license companies offering these contracts.
Allowing such regulation violates the
U.S. Constitution, the government said.
“This court should put an end to defendants’ ongoing efforts to undermine uniform federal law enforcement,” each lawsuit says.
On March 17, Arizona filed criminal charges against
Kalshi, the first by a state, accusing it of
allowing illegal gambling and also
allowing individuals to bet on elections.
Kalshi argued it was not a gambling operation and should not be subject to a patchwork of inconsistent laws.
