CFTC sues 3 states over prediction market regulatory authority

The Trump administration is suing Illinois, Connecticut, Arizona, and their gaming regulators over the federal government’s right to regulate prediction markets.

The Commodity Futures Trading Commission (CFTC) and the US Department of Justice filed separate lawsuits on Thursday against the three states.

In 2025, those states and their gaming regulators sent cease and desist letters to prediction platforms, including Kalshi and Polymarket, claiming that the event contracts offered by the platforms violated state gambling laws and licensing requirements.

The federal financial regulator’s lawsuit against Illinois Governor JB Pritzker, Attorney General Kwame Raoul and the Illinois Gaming Board argues that the Illinois Gaming Board overstepped its authority by categorizing event contracts as “wagers” or “sports betting” instead of asset swaps. 

In each of the three lawsuits, the CFTC maintains that it has “exclusive jurisdiction” to regulate “Designated Contract Markets (DCMs),” which include prediction platforms, under the Commodity Exchange Act (CEA). The Illinois lawsuit said:

“Unless restrained and enjoined by the court, defendants are likely to continue their attempts to subvert federal law and the exclusive jurisdiction to regulate event contract swaps conferred on the CFTC by Congress,” the lawsuit filing said.

The CFTC lawsuit comes amid increased legal scrutiny of prediction markets by US lawmakers and regulators, as 11 states pursue legal action against prediction market platforms.

Related: CFTC’s top enforcer puts prediction market insider traders on notice

CFTC chief pushes back as legal pressure on prediction markets intensifies

“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,” CFTC Chairman Mike Selig said after the lawsuits were filed.

State regulators in Arizona, Nevada, Illinois, Maryland, New Jersey, Montana, Ohio, Connecticut, Tennessee, New York and Massachusetts have taken legal action against prediction markets.

At the same time, Congressional lawmakers are attempting to push through legislative proposals that would ban sports-related event contracts and prevent political insiders from participating in prediction markets tied to war. 

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