The Trump administration to states: You can't regulate prediction markets

The Commodity Futures Trading Commission is seeking federal court orders against Arizona, Connecticut, and Illinois that would prevent those states from enforcing their gambling statutes against prediction market platforms.

The agency argued Thursday that Congress granted it exclusive authority to regulate event contracts under the Commodity Exchange Act, and that state-level enforcement creates a fragmented patchwork of conflicting obligations. 

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

The lawsuits escalate a broader conflict between the Trump administration and state governments over who controls prediction markets. Thirty-nine attorneys general from across the political spectrum had already sided with the state of Nevada in its battle to enforce its gambling laws against Kalshi. In a recent win, Nevada temporarily banned the company from accepting wagers on sports, elections, and entertainment.

Arizona's attorney general went further, filing criminal allegations that Kalshi's corporate parent had operated a gambling enterprise in the state outside of any licensed framework.

The CFTC's senior leadership team described the lawsuits as a deliberate move to settle the mismash of state legal battles — one that, in their view, is headed for the nation's highest court.

Platforms like Kalshi and Polymarket hold exchange registrations with the CFTC, structuring contracts as financial instruments tied to the outcome of real-world events. The industry, which expanded rapidly in the months after the November 2024 election, has financial links with President Donald Trump's family: One of his sons, Donald Trump Jr., invested in Polymarket through his venture capital firm in August. Trump Jr. also serves as a strategic advisor to Kalshi.

The CFTC first recognized event contracts in 1992 and received broad statutory authority over commodity-based event contracts following the 2008 financial crisis. The agency recently issued an advanced notice of proposed rulemaking to clarify how its regulations apply to prediction markets.

The legal battle is unfolding alongside fresh scrutiny on Capitol Hill. More than 10 bills have been introduced this year to impose new restrictions on prediction markets, including a bipartisan measure that would bar CFTC-registered exchanges from listing contracts resembling sports betting or casino gaming. The surge in legislative interest follows reports of possible insider trading on Kalshi and Polymarket tied to U.S. military strikes on Iran.