Key Points
- Following Governor Tim Walz’s signature on SF 3432 in May 2026, Kalshi initiated federal legal proceedings against Minnesota.
- The legal challenge asserts that Minnesota’s prohibition conflicts with the CFTC’s congressionally granted authority over event contract regulation.
- The platform contends that state authorities are attempting to criminalize federally sanctioned trading activities.
- Constitutional free speech protections form part of the complaint, challenging Minnesota’s ability to restrict advertising of federally legal services.
- Parallel legal challenges in Arizona and Rhode Island have yielded favorable rulings for federal regulatory primacy.
A federal legal challenge has been launched by Kalshi against Minnesota, contesting newly enacted legislation that prohibits prediction market operations within state borders. The legal action follows Governor Tim Walz’s approval of Senate File 3432 on May 26, 2026.
This development comes on the heels of separate litigation initiated by the Commodity Futures Trading Commission against Minnesota regarding an earlier prediction market measure.
Details of Minnesota’s Prohibition
Senate File 3432 replaced previous prediction market regulations contained in SF 4760, which Governor Walz had signed into law earlier in May. The updated legislation also included provisions within a comprehensive public safety initiative.
Implementation of the statute is scheduled for August 1, 2026.
The defendants identified in Kalshi’s complaint include Attorney General Keith Ellison, Governor Tim Walz, and Jon Anglin, who directs the Alcohol and Gambling Enforcement Division.
The trading platform seeks both declaratory judgment and injunctive relief from federal courts to prevent enforcement before the effective date.
Kalshi’s Legal Arguments Against the Statute
The central premise of Kalshi’s challenge rests on the Commodity Exchange Act’s grant of exclusive regulatory power to the CFTC concerning event contracts. The platform maintains that Minnesota’s legislation impermissibly encroaches on federal regulatory domain.
As a federally registered contract market, Kalshi contends the state law would effectively criminalize operations that federal authorities have explicitly authorized.
The complaint emphasizes that SF 3432 prohibits both trading particular event contracts and operating platforms that facilitate such contract types.
Kalshi characterizes the legislation as specifically designed to undermine federally regulated contract markets.
Additionally, the lawsuit invokes First Amendment protections. Kalshi maintains that states lack authority to prohibit commercial speech regarding federally lawful products and services. The filing notes that no judicial precedent supports absolute state bans on advertising activities permitted under federal law.
Minnesota previously participated in multistate legal filings asserting that CFTC jurisdiction does not extend exclusively to sports-related event contracts. Kalshi references decisions from the Third Circuit Court of Appeals and an Arizona federal district court supporting federal preemption doctrines in comparable disputes.
Expanding National Legal Conflict
This litigation represents one component of an escalating nationwide confrontation over prediction market regulation across multiple jurisdictions.
In Arizona, Kalshi and state officials jointly petitioned for suspension of appellate proceedings while the Ninth Circuit evaluates related matters involving Kalshi, Crypto.com, and Robinhood. Federal courts have already issued preliminary injunctive relief favoring the CFTC and Department of Justice against Arizona regulatory authorities.
Rhode Island officials committed to suspending enforcement actions against both Kalshi and Polymarket during ongoing federal proceedings, pursuant to a May 26 order from U.S. District Judge Mary S. McElroy.
The CFTC characterized Minnesota’s prohibition as unprecedented in American regulatory history and cautioned that the ban could disrupt established derivatives markets connected to weather and agricultural commodities, including instruments traded on the Chicago Board of Trade since the early 1990s.
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