The United States Commodity Futures Trading Commission and the Department of Justice have filed lawsuits against Illinois, Connecticut, and Arizona over the federal government’s authority to regulate prediction markets.

Summary

• The CFTC and Department of Justice have sued three states, arguing that prediction markets fall under exclusive federal derivatives oversight.
• Illinois and other states had issued cease and desist orders, claiming event contracts violated local gambling laws and licensing rules.

According to a complaint filed against Illinois Governor JB Pritzker, Attorney General Kwame Raoul, and the Illinois Gaming Board, the state gaming board improperly classified event contracts as “wagers” or “sports betting” instead of swaps.

In the lawsuits, the CFTC maintains that it has “exclusive jurisdiction” to regulate “Designated Contract Markets (DCMs),” which it says extend to prediction platforms under the Commodity Exchange Act (CEA).

Per the regulator, Illinois’s move to shut down such platforms “intrudes on the exclusive federal scheme Congress designed to oversee national swaps markets, prompted by the evolution of national financial markets and repeated conflicts with state law.”

“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 added.

The case stems from cease and desist letters issued by the states and their gaming regulators last year against platforms including Kalshi and Polymarket. The letters claimed that the contracts violated local gambling laws and licensing requirements.

Commenting on the developments, CFTC Chairman Mike Selig described the actions as “aggressive and overzealous attempts to overstep the CFTC,” in a separate statement after the lawsuits were filed.

“Our action today is meant to ensure we are able to effectively regulate the markets that Congress intended us to exclusively oversee,” he added.

State regulators take legal action

Over the past year, at least 11 U.S. states, including Arizona, Nevada, Illinois, Maryland, New Jersey, Montana, Ohio, Connecticut, Tennessee, New York, and Massachusetts, have filed actions against prediction market operators.

Simultaneously, some lawmakers are advancing legislative proposals that would ban sports-related event contracts, while others seek to restrict participation in prediction markets tied to war.

Despite the legal pressure, prediction markets are witnessing rapid growth. As previously reported by crypto.news, transaction activity surged, with volumes increasing by more than 2,800% from the same period last year.