CFTC sues New York to assert exclusive federal jurisdiction over prediction markets
37 state AGs simultaneously filed an amicus brief backing Massachusetts against Kalshi, sharpening the federal-state clash
Briefing
- •The CFTC filed suit in the Southern District of New York seeking a declaratory judgment and permanent injunction to prevent the state from applying its gambling laws to federally regulated prediction market platforms.
- •New York triggered the action by suing Coinbase and Gemini earlier in the week, arguing their prediction market contracts violated state gambling rules; the state had previously targeted Kalshi with a cease-and-desist over sports wagering.
- •CFTC Chair Michael Selig, four months into his tenure, has now sued four states, including Arizona, Connecticut, and Illinois, on the same preemption theory that the agency holds exclusive jurisdiction over event contracts as commodity derivatives.
- •On the same day, 37 state attorneys general, including New York AG Letitia James, filed an amicus brief in the Massachusetts-Kalshi case arguing federal financial law was never intended to override state gambling authority and that preemption would erode consumer protections covering licensing, age limits, and addiction.
- •New York Governor Kathy Hochul and AG James said the administration was prioritising corporations over consumers and pledged to defend state gambling law in court.
- •The outcome will determine whether prediction market platforms can operate nationally under a single federal framework or must comply with a patchwork of state gambling regimes.
Analysis
- →With 37 state AGs now formally aligned against CFTC preemption in the Massachusetts-Kalshi case, the federal courts face a coalition argument that carries political weight beyond any single state suit. A circuit split or adverse ruling against CFTC would force Coinbase and Gemini to seek state-by-state licensing, converting prediction markets from a scalable federal product into a compliance-intensive patchwork. Legal reserves and product buildout costs would compound across both firms regardless of CFTC's ultimate position.
- →The 37-state amicus coalition transforms what began as isolated enforcement actions into a coordinated federalism challenge. This raises the probability that Congress must legislate rather than litigate a resolution, extending legal uncertainty well past any near-term court calendar. Extended ambiguity structurally suppresses prediction market product investment at Coinbase and Gemini while benefiting Kalshi, which as a designated contract market has the deepest CFTC institutional backing and the most to gain from a federal preemption ruling.
Historical Context
- 2011-2012
The CFTC and states fought over jurisdiction on swap markets under Dodd-Frank, with states arguing federal preemption displaced consumer protection regimes. Courts ultimately sided with federal exclusivity on derivatives, the same preemption theory CFTC is now applying to prediction markets.
- 2006
The Unlawful Internet Gambling Enforcement Act created a federal-state conflict where online poker operators faced state prosecution despite operating under federal payment processing rules. The resulting patchwork forced most operators to exit the US market, the outcome CFTC is now trying to prevent for prediction markets.
Connected Events
Wisconsin sues Kalshi, Polymarket, Robinhood, Coinbase and Crypto.com over sports contracts
Wisconsin's DOJ sued Kalshi, Polymarket, Robinhood, Coinbase, and Crypto.com over sports prediction contracts, adding a fifth concurrent state-level action and broadening the litigation surface to platform language, not just product structure.
US soldier charged with insider trading on Polymarket using classified Maduro raid intel
The DOJ arrest of US Army Sgt. Van Dyke for using classified intelligence to trade on Polymarket gives state AGs a concrete criminal case to cite when arguing that federal oversight of prediction markets has been inadequate, directly strengthening the 37-state amicus position.
New York and Illinois ban state employees from insider trading on prediction markets
New York and Illinois issued executive orders banning state employees from prediction market insider trading while simultaneously contesting CFTC jurisdiction, establishing a pattern where states are building parallel consumer protection frameworks regardless of federal preemption outcomes.
