Tennessee probes Kalshi, Polymarket and Crypto.com over sports betting

Tennessee regulators have ordered Kalshi, Polymarket, and Crypto.com to stop providing citizens with contracts for sporting events due to alleged violations of state gambling regulations. 

The North American Derivatives Exchange of Crypto.com, Polymarket, and Kalshi received letters dated January 9 from the Tennessee Sports Wagering Council. The letters demanded that the companies, which operate under federal CFTC supervision, must cease operations in Tennessee, nullify open contracts, and return user deposits by January 31st.

The Tennessee letters demanded that failure to comply may result in criminal referrals for aggravated gambling promotion, a felony under state law, as well as civil penalties of up to $25,000 per infraction.

Tennessee threatened a variety of sanctions for failure to comply. The Tennessee Sports Gaming Act allows the SWC to sanction anybody who offers wagers without a state license $10,000 for the first crime, $15,000 for the second, and $25,000 for successive infractions. Additionally, the regulator threatened to file a request in state court for injunctive action.

Tennessee challenges CFTC-regulated platforms over unlicensed sports contracts

The Tennessee Sports Wagering Council (SWC) accused all three companies of unlawfully selling sports wagering goods under the pretense of event contracts. 

The companies are currently registered as designated contract markets with the Commodity Futures Trading Commission (CFTC), allowing consumers to purchase contracts based on the results of sporting events. However, any organization that takes bets on athletic events is required to have a state-issued license under Tennessee’s Sports Gaming Act. 

The SWC said none of the three firms has one. Accordingly, the letters declare that the contracts offered for sporting events constitute wagers under the Act and are being sold illegally in violation of Tennessee law and regulations.

In the letter to Polymarket, SWC Executive Director Mary Beth Thomas stated, “The sports event contracts offered on Polymarket’s exchange are not compliant with these Tennessee state consumer protections and many others and are an immediate and significant threat to the public interest of Tennessee.” The language used in the letters to Crypto.com and Kalshi was almost identical.

Market activity on Kalshi and Polymarket continues to rise, despite the persistence of legal disputes. Polymarket reentered the U.S. market after acquiring derivatives exchange and clearinghouse QCX for $112 million during the summer. In December, it started making its U.S. app available to waitlisted users, though the firm hasn’t made a public relaunch.

States intensify crackdown on prediction markets despite federal oversight

States have frequently pursued these platforms, even though they operate lawfully under federal derivatives legislation. 

In December of last year, Cryptopolitan reported that Connecticut issued three cease-and-desist orders against Crypto.com, Kalshi, and Robinhood.

The Department of Consumer Protection (DCP) Commissioner Bryan T. Cafferelli ordered the platforms to immediately cease advertising, marketing, offering, or otherwise making available contracts or any other type of unauthorized online gaming to Connecticut citizens. Cafferelli accused Kalshi, Crypto.com, and Robinhood of conducting unlicensed online gambling, more specifically, sports wagering.

Cafferelli claimed that even if they were licensed, their contracts would violate several other state rules and regulations, including those that prohibit anyone under the age of 21 from gambling.

In another Cryptopolitan report, Kalshi encountered similar enforcement actions in other states last year, including Arizona, Illinois, Montana, Nevada, New Jersey, Maryland, and Ohio.

On April 3, Illinois casino authorities ordered Kalshi to stop offering sports betting prediction markets. Kalshi’s contracts, according to Illinois casino officials, amount to unlawful sports betting under state law.

Arizona’s gambling authority joined the state-by-state campaign against prediction markets on May 22 in response to the event contracts of Kalshi and others for sports and other markets. Kalshi and Crypto.com received a cease-and-desist notice from the Arizona Department of Gaming (ADG).

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