The U.S. Commodity Futures Trading Commission and the Department of Justice on Thursday filed a lawsuit against Illinois and several state officials over the state’s efforts to shut down prediction market providers.
Illinois sent cease-and-desist letters to some prediction market providers, arguing that the companies were offering sports betting products that should be regulated by state law. The CFTC has argued that prediction markets offer swap products, which are regulated by the federal Commodity Exchange Act and therefore fall under the “exclusive jurisdiction” of that regulator.
In the lawsuit, the CFTC continued this argument, saying that Illinois’ efforts “intrude” on the CFTC’s role and that federal law trumps state regulations in this matter.
“Event contracts are derivative instruments that allow parties to trade their predictions about whether a future event will occur, which may be related to the economy, elections, weather, sports or anything else of possible financial, economic or commercial consequence,” the document says.
The CFTC, especially under current Chairman Mike Selig, has argued that prediction markets are regulated at the federal level, even as many of these companies expand to allow customers to place bets on sporting events. States, under both Republican and Democratic rule, have regressed. The Nevada Gaming Control Board obtained a temporary restraining order against Kalshi last month, with a hearing scheduled for Friday.
The CFTC will participate in an appeals court hearing before the Ninth Circuit later this month in a consolidated case involving North American Derivatives Exchange, Kalshi and Robinhood.
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