New York and Illinois ban state employees from insider trading on prediction markets
Governors cite federal regulatory vacuum as CFTC-state jurisdiction battle intensifies over fast-growing sector
Briefing
- •New York Governor Kathy Hochul signed an executive order Wednesday prohibiting state employees from using nonpublic information obtained in their official roles to wager on prediction markets; Illinois Governor J.B. Pritzker issued a near-identical order Tuesday.
- •Hochul explicitly challenged the CFTC's claim of exclusive jurisdiction and criticised the agency for failing to establish insider-trading protections or take enforcement action against offenders.
- •The orders follow New York Attorney General Letitia James suing Coinbase and Gemini on Tuesday, alleging the firms operate illegally unregistered gambling schemes through their prediction market products.
- •The CFTC, under Chair Michael Selig, has sued Illinois, Arizona, and Connecticut this month over their attempts to shut down prediction market platforms, asserting federal pre-emption over what it calls federally regulated designated contract markets.
- •Kalshi on Wednesday disclosed a second round of enforcement actions, fining and suspending three political candidates including Minnesota state senator Matt Klein, Texas candidate Ezekiel Enriquez, and Virginia Democratic Senate primary candidate Mark Moran for betting on their own races.
- •The insider-trading concern is global: two Israelis with military ties were arrested in February over bets placed on the timing of an attack on Iran, and a Polymarket trader pocketed hundreds of thousands of dollars in January after correctly anticipating details of a US strike on Venezuela.
Why it matters
- →The CFTC-state conflict is now a live constitutional confrontation, not a policy disagreement. The CFTC has sued three states over prediction market shutdowns while New York and Illinois have issued executive orders directly contesting CFTC's exclusive jurisdiction claim. Until federal courts resolve pre-emption, Coinbase and Gemini face state-level injunction risk that is independent of any CFTC outcome, fragmenting their addressable market in major states regardless of federal regulatory posture.
- →Kalshi's self-enforcement actions against candidates betting on their own races, combined with state insider-trading bans and the global precedent cases involving Israeli military personnel and the Venezuela trader, give regulators documented evidence of systemic integrity failures across the prediction market ecosystem. This raises the probability that Congress or the CFTC is compelled to impose mandatory market surveillance and reporting requirements that increase compliance costs for all platform operators, including Kalshi itself despite its CFTC-regulated status.
Historical Context
- 2018
New Jersey v. NCAA established that states cannot be compelled to keep anti-sports-betting laws on the books, but PASPA's repeal did not eliminate state-federal jurisdictional friction. States subsequently enacted divergent regulatory frameworks, fragmenting the US sports betting market by state in exactly the pattern now emerging for prediction markets.
- 2012-2015
The CFTC's shutdown of Intrade, a Dublin-based prediction market with US users, on grounds it offered illegal off-exchange commodity contracts, demonstrated federal willingness to assert jurisdiction over event-based contracts. The current conflict inverts that dynamic: the CFTC is now defending prediction markets against state shutdowns.
Connected Events
New York AG sues Coinbase and Gemini over unlicensed prediction markets
The New York AG sued Coinbase and Gemini the day before these executive orders, characterising prediction markets as illegal gambling under state law. The executive orders compound that litigation by adding a separate insider-trading enforcement vector, giving New York two independent legal theories to pursue simultaneously against the same firms.
Kalshi plans crypto perpetual futures to rival Coinbase and Robinhood
Kalshi's concurrent plan to launch crypto perpetual futures places it in direct competition with Coinbase at the same moment Coinbase faces mounting regulatory pressure on its prediction market business. If Coinbase is forced to restrict prediction market operations in major states, Kalshi gains user acquisition advantage in event-based trading while also encroaching on Coinbase's derivatives revenue.
