Kalshi, Coinbase and Robinhood Are at the Center of a Federal-State Legal Clash

TLDR

• The CFTC has sued Wisconsin, making it the fifth state lawsuit filed by the agency over prediction markets jurisdiction.
• Wisconsin sued Kalshi, Polymarket, Crypto.com, Robinhood, and Coinbase last week, calling them unlicensed gambling operations.
• CFTC Chairman Michael Selig argues the agency has “exclusive jurisdiction” over prediction market event contracts under federal law.
• The CFTC has also sued New York, Arizona, Connecticut, and Illinois in similar actions this month.
• A judge in Arizona already paused a criminal case against Kalshi, suggesting federal law may override state gambling rules.

The CFTC sued Wisconsin on Tuesday after the state went after five prediction market platforms for allegedly running illegal gambling operations without state licenses. The federal agency says state laws simply do not apply here.

Wisconsin filed its lawsuit last Thursday against Kalshi, Polymarket, Crypto.com, Robinhood, and Coinbase. The state argued that prediction markets offering sports-related event contracts are illegal betting under state gambling law.

The CFTC responded quickly. It filed its own suit in the U.S. District Court for the Eastern District of Wisconsin, alongside the Justice Department’s Civil Division.

This is the fifth time this month the CFTC has sued a state over prediction markets. Earlier actions were filed against New York, Arizona, Connecticut, and Illinois.

CFTC Chairman Michael Selig has been the driving force behind these lawsuits. He is currently the sole member of what is supposed to be a five-person commission.

The CFTC argues that prediction markets are a form of derivatives trading. It says these contracts fall under federal oversight as designated contract markets, not under state gambling laws.

Federal vs. State Authority

The core of the dispute is whether states or the federal government have the right to regulate prediction markets. The CFTC says Congress gave it exclusive authority over these types of contracts.

States disagree. They say sports-based event contracts are gambling products that need state gaming licenses. Several states have pursued both civil and criminal cases against the platforms.

In Arizona, a court recently paused a criminal case against Kalshi. The judge said the CFTC is likely to succeed in arguing that federal law overrides state gambling rules.

What the CFTC Is Asking For

In its Wisconsin complaint, the CFTC named Governor Anthony Evers, Attorney General Josh Kaul, and the Wisconsin Gaming Division as defendants.

The agency asked the court to rule that state gambling laws do not apply to federally regulated prediction markets. It also asked for a permanent injunction blocking Wisconsin from taking action against these platforms.

Coinbase and Robinhood, both publicly traded companies, are among the named platforms in the Wisconsin state lawsuit. Gemini was named in New York’s separate lawsuit against Coinbase.

New York also sued Coinbase and Gemini last week over their prediction markets operations. The CFTC responded to that with its own lawsuit against New York just days later.

The Wisconsin Department of Justice, the Division of Gaming, and Governor Evers’ office had not responded to requests for comment at time of publication.

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