The Commodity Futures Trading Commission has filed suit against the states of Arizona, Connecticut, and Illinois, challenging their efforts to ban prediction market betting on platforms such as Kalshi and Polymarket.
Prediction markets allow users to wager on real-world outcomes, from the likelihood of rain in Nevada to the beginning of a war, and have grown rapidly in popularity since 2024.
While the platforms host a range of event-based contracts, they are most commonly associated with sports-related betting. Polymarket, for instance, announced a partnership with Major League Baseball in March.
The three states named in the lawsuit have issued cease-and-desist orders to prediction market companies, arguing the platforms constitute illegal online gambling under state law. Arizona, in particular, filed criminal charges against Kalshi, alleging violations of state gambling statutes.
In a statement, the CFTC argues that federal law grants it sole authority to regulate these markets under the Commodity Exchange Act, a 1938 law amid at preventing market manipulation and establishing the CFTC as the federal regulatory body.
“Despite the CFTC’s clear and longstanding exclusive jurisdiction to regulate event contracts under the Commodity Exchange Act, various states have attempted to outlaw, regulate, or otherwise restrain the activities of DCMs that facilitate trading in lawful event contracts,” the agency said. “Congress long ago decided that a national framework for commodity derivatives markets was preferable to a fragmented patchwork of state regulations.”
In the statement, CFTC Chairman Michael S. Selig warned against what he described as regulatory overreach by states.
“The CFTC will continue to safeguard its exclusive regulatory authority over these markets and defend market participants against overzealous state regulators,” Selig said.
State officials, however, are pushing back. Connecticut Attorney General William Tong accused the Trump administration of “recycling industry arguments” that courts have previously rejected.
“These contracts are plainly unlicensed illegal gambling under time-worn state law, and we will aggressively defend Connecticut’s commonsense consumer protection laws,” Tong said.
The legal clash comes as the Trump administration has signaled support for prediction markets.
In February, Selig said the agency would no longer “sit idly by” as states attempt to impose restrictions on the industry.
At the same time, lawmakers on Capitol Hill are moving to assert greater federal oversight. A wave of new legislation has been introduced in recent weeks to regulate the rapidly expanding sector amid concerns that prediction markets operate with fewer safeguards than traditional industries like gambling or equities trading.
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Rep. Jamie Raskin (D-MD), a co-sponsor of the STOP Corrupt Bets Act, warned that the platforms could undermine public trust.
“The oligarchs and opportunists are using prediction markets like Kalshi and Polymarket to enrich themselves,” Raskin said. “But democracy isn’t about insider gambling on our common future, it’s about everyone making it together. Placing bets on public policy and political events informed by insider knowledge spreads civic cynicism and distrust in our democratic institutions.”
