The U.S. commodities regulator has moved to prevent Kalshi, a registered prediction market platform, from reversing Michigan trades—sparking fresh legal friction between federal oversight and a state court order. The dispute centers on whether Kalshi must unwind already executed sports betting contracts for Michigan users while litigation over Michigan’s sports betting laws continues.
On Tuesday, the Commodity Futures Trading Commission (CFTC) ordered Kalshi not to comply with the Michigan order and instead continue operating. The clash follows an earlier ruling on June 29 by Ingham County Circuit Court Judge Rosemarie Aquilina, who directed Kalshi to stop offering sports betting contracts to Michigan users during the ongoing case.
Key takeaways
- The CFTC says canceling already executed prediction market trades would disrupt market certainty and create a cascading effect across derivatives markets.
- Kalshi argues the situation forces it to choose between conflicting obligations: comply with a state court directive or follow federal regulatory requirements.
- The controversy underscores an ongoing jurisdictional tension between the CFTC and multiple state regulators regarding prediction markets.
- CFTC Chair Michael Selig warned that the agency will continue legal action against states that attempt to impose penalties on CFTC-registered exchanges.
Michigan judge’s order vs. federal directive
Michigan’s court case began with a directive that targeted Kalshi’s ability to provide sports betting contracts to residents of the state. According to Cointelegraph reporting, Judge Aquilina ordered Kalshi to cease offering those contracts to Michigan users while the lawsuit proceeds over whether Kalshi’s offerings violate state sports betting laws. Earlier coverage from Cointelegraph described the scope of that order and the legal context surrounding it.
But on Tuesday, the CFTC intervened. In a press statement, the regulator ordered Kalshi not to comply with the Michigan directive and to continue operating despite the state order. The CFTC press release frames the issue as one of maintaining federal authority over registered entities and executed derivatives contracts.
Kalshi says it unwound trades—and now faces contradictions
Kalshi’s response highlights the practical dilemma regulators rarely address directly: companies caught between courts can end up violating one authority while trying to obey another.
In a statement posted on X, Robert DeNault, Kalshi’s head of enforcement and legal counsel, said the company is “disappointed” and described the federal action as placing Kalshi in an “impossible position.” DeNault’s statement on X argues that Kalshi already followed the Michigan court order by unwinding the trades, but the new CFTC directive appears to contradict that requirement.
DeNault’s wording underscores the core problem: Kalshi believes it is being pushed into a compliance conflict, where it may be required to reverse actions taken under state instructions while also meeting federal regulatory expectations.
Reuters reported that Kalshi is reviewing the CFTC’s order and considering its next steps. According to Reuters, the company is weighing how to respond given the opposing directives.
Why the regulator says “canceling” is a market-breaking precedent
The CFTC’s position is grounded in the mechanics of derivatives contracting. The regulator argues that canceling trades already executed is not just a procedural change—it threatens contract certainty across the marketplace.
In the same dispute framing, the CFTC characterized cancelation of executed trades as unprecedented and potentially destabilizing. The regulator’s message is that prediction markets operate through contractual certainty, and that undermining that certainty would ripple outward beyond any single platform.
The CFTC also emphasized that it will not allow states or state courts to pressure registered entities into violating the Commodity Exchange Act and CFTC regulations. That argument is aimed directly at the core tension at the center of the Michigan case: whether states can effectively override federal rules through injunctions and court orders applied to an exchange that is already registered with the CFTC.
Broader conflict: federal authority vs. state-by-state attempts
This is not presented by the CFTC as an isolated disagreement. The regulator has repeatedly argued that prediction markets fall within the federal scope when they are run through CFTC-registered structures.
As the dispute is framed, Michigan is described by the CFTC as the first state to attempt interference with executed derivatives transactions through a court order. That characterization matters because it suggests the CFTC views the issue as moving from “licensing and legality” arguments—traditionally handled at the state level—into the domain of how executed federal derivatives contracts must be honored.
During an appearance on Fox Business, CFTC Chair Michael Selig said it is “critical” that the regulator maintains its authority over prediction markets. Selig also stated that the agency has sued nine states and indicated it would continue to challenge states that attempt to impose criminal or civil fines against CFTC-registered exchanges. According to Selig’s remarks, the CFTC’s stance is that state actions cannot be allowed to erode the federal regulatory framework for these markets.
For investors and market participants, the practical implication is that prediction market compliance may remain a moving target. Even where a state court order appears clear, a federal regulator may step in to enforce a different standard. That dynamic increases uncertainty for platforms operating across state lines and could affect how traders evaluate jurisdictional risk when participating in events-based contracts.
What to watch next is how Kalshi navigates the contradiction between the Michigan directive and the CFTC’s order—and whether additional courts or appeals clarify which obligations control when state and federal requirements diverge for already executed derivatives contracts.
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