What to know:
- CFTC seeks injunction to block Arizona enforcement on prediction market platforms.
- Federal law cited to claim exclusive oversight of prediction market event contracts.
- Court ruling backs CFTC, blocks New Jersey gaming laws on Kalshi contracts.
The Commodity Futures Trading Commission (CFTC) filed a motion on Wednesday in the U.S. District Court for the District of Arizona to stop the state from enforcing criminal and gambling laws against federally regulated prediction market platforms. The filing seeks a preliminary injunction and a temporary restraining order.
According to an official report, the motion is submitted jointly with the Department of Justice. It argues that federal law grants exclusive oversight of prediction markets.
The case centers on the Commodity Exchange Act, which the agency says governs event contracts. The CFTC maintains that these platforms fall under derivatives regulation, not state gambling rules.
Also Read: Prediction Markets Surge on Geopolitical Bets, Reaching $23.7 Billion in March
CFTC Pushes Back on State Actions
The agency stated that Arizona’s use of state criminal statutes against federally regulated entities is unlawful. It said such action is preempted by existing federal law.
The filing warns that allowing state enforcement could disrupt a unified national framework. It also notes risks for firms operating in compliance with federal rules.
Selig, Chairman of the CFTC, criticized the method used in Arizona. He argued that the application of criminal laws to platforms that comply with regulation would set a dangerous precedent.
In addition, he noted that the structure is intended to regulate derivatives and event contracts. In a post on X, he said that the CFTC would defend its sole jurisdiction.
The CFTC brought actions against the states for a reason. On April 2, 2022, it filed a lawsuit against Connecticut and Illinois. In both cases, the states had issued cease and desist orders to the operators of the prediction markets.
The agency sought declaratory judgments in these cases. In addition, it asked for permanent injunctions to prevent state enforcement.
The filings are intended to ensure that federal laws have precedence over competing state laws. The authority claims that only it has the mandate to govern the event-related contracts. It states that having several levels of enforcement might result in conflict of laws.
Prediction Markets Face State Pushback
Prediction markets have become increasingly popular in recent years. These platforms provide users with the ability to place bets on contracts related to actual events. Among firms operating in this are Kalshi and Polymarket, which are federally registered with the CFTC.
However, some states keep objecting to this model. Arizona argues that prediction markets can be considered gambling platforms under state regulations.
The matter seems even more complicated if the platform attracts retail users. As a result, there is always room for litigation.
Recently, a major decision was made by the courts. On April 6, the U.S. Court of Appeals for the Third Circuit issued a 2-1 decision.
It confirmed exclusive jurisdiction of the CFTC over event contracts on Kalshi’s designated contract market. The court also stopped New Jersey from implementing its gaming laws against these contracts.
This means that an important precedent will soon be established. If the court sides with the CFTC, then its authority will only grow. In this case, the states will have little space for intervention. Alternatively, a ruling in favor of Arizona will change the situation.
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