CFTC Backs Prediction Markets In State Legal Fight
CFTC Chairman Michael Selig filed a friend-of-the-court brief backing Kalshi, Polymarket and Crypto.com, asserting federal jurisdiction over prediction markets amid state lawsuits and a Nevada restraining order.
Overview
The Commodity Futures Trading Commission filed a friend-of-the-court brief supporting Crypto.com and said it will defend its exclusive jurisdiction over prediction markets, CFTC Chairman Michael Selig said in a video posted on X.
States including Nevada, Massachusetts and New York have filed roughly two dozen suits, cease-and-desist orders and enforcement actions alleging the platforms operate unlicensed gambling.
A group of Democratic senators led by Nevada's Catherine Cortez Masto sent CFTC Chairman Michael Selig a letter urging the agency to abstain from intervening in litigation over contracts tied to sports, war or other prohibited events.
Kalshi said Super Bowl LX generated more than $1 billion in trading volume, and roughly 90% of Kalshi's trading and roughly half of Polymarket's trading is tied to sports.
A federal judge issued a temporary restraining order blocking Kalshi from operating in Nevada, Kalshi has appealed to the U.S. Court of Appeals for the 9th Circuit, and the CFTC warned it would litigate to protect its jurisdiction.
Analysis
Center-leaning sources frame this coverage pro-innovation by emphasizing CFTC claims that prediction markets provide societal benefits and act as a check on media, while portraying state actions as protectionist. Editorial choices—highlighting regulator praise, stressing startups' vision, and casting doubt on opposing statistics—privilege economic/innovation angles over consumer-protection depth.
Sources (4)
FAQ
The CFTC asserts that prediction markets are commodity derivatives regulated under the Commodity Exchange Act, placing them squarely within the agency's exclusive regulatory remit.[1] The CFTC argues that Congress has vested it with broad jurisdiction over derivatives, and courts have established decades of precedent affirming this authority.[1] The agency contends that the Commodity Exchange Act is designed to account for financial innovation, and that just because a derivative is novel does not excuse courts from applying existing law.[5]
States including Nevada, Massachusetts, and New York argue that prediction markets operate as unlicensed gambling and should be subject to state gaming laws rather than federal commodity regulation.[5] States view platforms like Kalshi and Polymarket as exploiting a regulatory loophole, particularly given that roughly 90% of Kalshi's trading and roughly half of Polymarket's trading is tied to sports betting.[1] Critics claim these platforms are effectively sports betting operations dressed up as financial derivatives.
CFTC-registered exchanges including Kalshi, Polymarket, Crypto.com, and Coinbase are actively litigating against state restrictions, with nearly 50 active cases across the country.[5] Kalshi has appealed a Nevada restraining order to the U.S. Court of Appeals for the Ninth Circuit, and the platforms are arguing there is a technical legal difference between gambling and trading financial derivatives.[4] The CFTC has entered the litigation on their behalf through an amicus brief, with Chairman Selig vowing to defend federal jurisdiction in court.
The CFTC faces significant resource constraints that may undermine its regulatory capacity. Barron's reported that the CFTC's Chicago office, traditionally a major enforcement hub that once employed 20 enforcement attorneys, has lost all of them due to layoffs and resignations.[4] Additionally, there have been no enforcement actions related to prediction markets listed on the CFTC's website since Trump's second term began, and the agency has yet to bring a case alleging fraud or manipulation in these markets despite their growing popularity.[3]
Legal experts suggest the Supreme Court is likely to make the final determination on whether prediction markets can be regulated by states or fall exclusively under federal CFTC authority.[2] Melinda Roth, a visiting associate professor of law at Washington and Lee University, noted that while some states have accepted the argument that prediction markets are financial derivatives preempted by federal regulation, others have not, making a Supreme Court decision probable.[2]
History
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