Federal Government vs. States: The Battle Over Prediction Market Regulation

The federal government has stepped into the legal wrangling between state gaming regulators and prediction market firms. The Commodity Futures Trading Commission (CFTC) filed lawsuits against Arizona, Connecticut, and Illinois this week. The CFTC argues that it has the sole responsibility to regulate the industry and seeks to block gaming regulators from applying state gaming laws to the prediction market firms. This marked the first effort by the CFTC to block states from regulating the industry and could be the start of a broader jurisdictional fight.

The CFTC contested cease-and-desist letters sent to companies like Polymarket, Kalshi, Crypto.com, and Robinhood. In Arizona, Attorney General Kristin Mayes even filed criminal charges against Kalshi in March. CFTC Chairman Michael Selig stated that the commission “will continue to safeguard its exclusive regulatory authority over these markets and defend market participants against overzealous state regulators.”

Connecticut Attorney General William Tong criticized the CFTC’s argument, stating that it was on shaky ground after recent legal rulings. “The Trump Administration is recycling industry arguments that have been rejected in district courts across the country,” Tong said in a statement. “We will aggressively defend Connecticut’s common-sense consumer protection laws.”