The U.S. Department of Justice and the Commodity Futures Trading Commission filed lawsuits on Thursday against Illinois, Arizona, and Connecticut, stepping in to defend prediction market platforms including Polymarket and Kalshi. The federal government’s position is direct: these products are event contracts that fall under the CFTC’s exclusive jurisdiction, not illegal sports betting subject to state enforcement.
Federal agencies frame the fight around regulatory authority
Over the past year, a growing number of state regulators have sent warnings or cease-and-desist orders to platforms such as Polymarket, Kalshi, and Crypto.com. States argue that sports-related prediction offerings on these venues do not qualify as event contracts under CFTC authority and should instead be treated as unlicensed sports wagering.
The federal complaint pushes back on that view. It argues that federal law gives the CFTC exclusive authority over these contracts, leaving states without the power to impose their own parallel regime. In a statement, CFTC Chair Michael Selig said the agency would continue defending its exclusive regulatory authority over these markets and protect participants from overly aggressive state regulators. He also said Congress had already rejected a fragmented state-by-state structure because it would weaken consumer protection and raise the risk of fraud and manipulation.
State actions had already escalated before the lawsuits
The new federal action follows a string of state-level moves against prediction market operators. Last month, Nevada secured a temporary injunction against Kalshi, becoming the first state in the country to temporarily block a prediction market platform. Arizona went even farther, bringing criminal allegations against Kalshi for allegedly operating an unlicensed illegal gambling business. It was described as the first state to take that step.
The conflict is not split neatly along party lines. The first group of states sued by the federal government includes Democratic-leaning Illinois and Connecticut, but Republican-leaning states have also taken a hard line. The report notes that Tennessee has recently moved against Polymarket and Kalshi, while Utah has been one of the sector’s harshest critics.
Trump camp connections add a political layer
The Trump administration’s aggressive support for prediction markets has also drawn attention to its ties to the industry. According to the report, Trump’s social media company has ambitions in the prediction market sector, and Donald Trump Jr. currently serves as an adviser to both Polymarket and Kalshi.
Another notable figure is Yaakov Roth, the principal deputy assistant attorney general representing the federal government in the Illinois case. Before joining the government, he was the lawyer who represented Kalshi in its landmark 2024 court win against the CFTC.
As these cases move forward, the dispute over prediction markets is turning into a larger battle over federal power, state authority, and the legal status of event contracts in the U.S. market. The outcome will shape whether these platforms can keep operating under a unified federal framework.