The Commodity Futures Trading Commission (CFTC) has filed suit against the state of Wisconsin, claiming the federal agency retains “exclusive jurisdiction” over prediction market exchanges. The legal action comes less than one week after the CFTC sued the state of New York for similar reasons, arguing that only the federal government has regulatory oversight authority over swaps markets.
The full legal complaint by the CFTC can be downloaded through the agency’s official portal. The suit was filed Tuesday, April 28th, in the US District Court for the Eastern District of Wisconsin (Milwaukee). The CFTC is asking the court to deem state enforcement actions against prediction markets invalid and unconstitutional, citing the US Supremacy Clause of 1788.
“Congress assigned exclusive jurisdiction over the regulation of various derivative products to the CFTC decades ago, including over event contracts traded on designated contract markets, or DCMs,” reads the April 28th press release from the CFTC. “Despite this, some states have attempted to assert jurisdiction to regulate prediction markets via state gambling laws.”
The legal battle over “who” and “how” exchanges such as Kalshi, Robinhood, Polymarket, Crypto-com, and Coinbase are regulated continues, with some analysts pointing to an eventual SCOTUS showdown to settle the debate. States that are suing prediction markets claim that the platforms’ products are nothing more than “sports bets” disguised as “event contracts.”
However, prediction market apps, along with the CFTC, believe that their trading activities clearly fall under the jurisdiction of the federal government. Market swaps, trades, and forecasts, even if they are linked to sports contests, aren’t “sports betting,” say the exchanges. Rather, they are derivative products “executed on CFTC-Designated Contract Markets.”
Federal oversight of prediction markets could alter the existing enforcement infrastructure that states use, through their respective gaming boards or consumer-facing agencies, to fine, ban, and/or generate criminal referrals when gaming rules are broken. Last week, Kalshi suspended the accounts and imposed fines on three congressional hopefuls who it said used the exchange to engage in “political insider trading.”
While Kalshi’s settlements with the three alleged offenders were public, they did not result in any state-specific “gaming enforcement” action. It is unknown how the issue would have played out on a statewide level, mainly because each jurisdiction has its own rules, guidelines, and protocols related to imposing fines and assessing other punitive measures.
For now, the federal government is encouraging exchanges to cooperate with the CFTC, DOJ, and FBI – stating that prediction market and digital asset product builders should not fear prosecution based on the downstream actions of third party bad actors. The DOJ’s stance is a stark contrast to the legal views of many states that are suing prediction markets based on the actual services they offer.
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