Key Takeaways
- Federal regulators filed lawsuits against Illinois, Connecticut, and Arizona for attempting to regulate prediction market platforms.
- State authorities issued cease-and-desist orders to companies like Kalshi and Polymarket, classifying their offerings as unlicensed gambling.
- Federal authorities claim exclusive regulatory power over these markets through the Commodity Exchange Act.
- A total of 11 states have pursued enforcement actions against prediction market operators.
- CFTC leadership warned that state interference threatens market stability and investor confidence.
Federal regulators launched legal proceedings against three states this week following their attempts to regulate prediction market platforms like Kalshi and Polymarket. The central issue: whether states or the federal government has the power to oversee these emerging financial products.
The lawsuits from the Commodity Futures Trading Commission and the Department of Justice arrived Thursday, April 2, 2026.
The conflict emerged after Illinois, Connecticut, and Arizona issued cease-and-desist orders to prediction market operators in 2025. State regulators contended these platforms operated sports betting services requiring state gambling licenses.
Federal authorities challenge this interpretation. They maintain that prediction markets provide event contracts classified as derivative swaps. According to the Commodity Exchange Act, these instruments belong exclusively under federal regulatory oversight.
“Event contracts are derivative instruments that enable parties to trade on their predictions about whether a future event will occur,” stated the complaint filed against Illinois.
The federal lawsuit targeting Illinois names Governor JB Pritzker, Attorney General Kwame Raoul, and the Illinois Gaming Board as defendants. State gaming officials had categorized event contracts as “wagers” or “sports betting” — a classification federal regulators reject.
Illinois officials mounted a fierce defense. A representative for Governor Pritzker accused the Trump administration of “carrying water for companies driving well-documented and lucrative insider trading schemes.”
The Jurisdictional Battle
State officials also criticized the platforms for generating “record profits” while providing products lacking “basic consumer protections.” Illinois committed to defending its regulatory actions.
CFTC Chairman Mike Selig condemned the states’ enforcement efforts. “These states’ aggressive and overzealous attempts to overstep the CFTC have led to market uncertainty and risks destabilizing effects for market participants and our registrants,” he declared.
Selig emphasized that Congress had previously dismissed the concept of individual state regulations for these markets, describing it as a “fragmented patchwork” that increases fraud vulnerability and weakens consumer safeguards.
The situation extends beyond these three states. Eleven states altogether — including Nevada, New Jersey, New York, Maryland, and several others — have initiated enforcement measures against prediction market companies.
Nevada’s Gaming Control Board recently obtained a temporary restraining order against Kalshi, with court proceedings scheduled for Friday.
Future Developments
Legislative action is also underway. Congressional members are advancing bills that would prohibit sports-related event contracts completely and prevent political insiders from participating in prediction markets involving military operations.
The CFTC faces a hearing before the Ninth Circuit Court of Appeals in late April. That consolidated litigation includes Kalshi, Robinhood, and the North American Derivatives Exchange.
According to the CFTC, the agency first acknowledged event contracts in 1992 and has maintained regulatory jurisdiction continuously since then.
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