Key Takeaways
- Federal lawsuits filed against Illinois, Connecticut, and Arizona challenge state efforts to close prediction market operations.
- Cease-and-desist orders were issued to platforms such as Kalshi and Polymarket, with states alleging unlicensed gambling.
- Federal regulators claim exclusive oversight of prediction markets through the Commodity Exchange Act.
- A total of 11 states have initiated enforcement actions against these trading platforms.
- CFTC leadership warns that state interference threatens market stability and registered entities.
Federal authorities have initiated legal action against Illinois, Connecticut, and Arizona following state-level efforts to block prediction market platforms such as Kalshi and Polymarket. The regulatory clash centers on whether these platforms fall under federal commodities law or state gambling statutes.
The Commodity Futures Trading Commission, working alongside the US Department of Justice, submitted the legal complaints on Thursday, April 2, 2026.
Tensions escalated after the three states issued cease-and-desist directives to prediction market operators in 2025. State authorities maintained that these companies were conducting sports wagering activities requiring state-level licensing compliance.
Federal regulators contest this interpretation. They maintain that prediction markets facilitate event-based contracts classified as derivative swaps. According to the Commodity Exchange Act, such financial instruments belong exclusively under federal regulatory oversight.
“Event contracts are derivative instruments that enable parties to trade on their predictions about whether a future event will occur,” according to documentation filed in the Illinois case.
The federal complaint in Illinois names Governor JB Pritzker, Attorney General Kwame Raoul, and the Illinois Gaming Board as defendants. State regulators had categorized event contracts as “wagers” or “sports betting,” a designation federal authorities reject as fundamentally incorrect.
Illinois responded forcefully. A representative for Governor Pritzker criticized the Trump administration for “carrying water for companies driving well-documented and lucrative insider trading schemes.”
Jurisdictional Battle Intensifies
State officials further accused the platforms of generating “record profits” while providing products that lack “basic consumer protections.” Illinois vowed to continue defending its regulatory authority over residents.
CFTC Chairman Mike Selig criticized the states’ enforcement approach. “These states’ aggressive and overzealous attempts to overstep the CFTC have led to market uncertainty and risks destabilizing effects for market participants and our registrants,” he stated.
Selig emphasized that Congress deliberately avoided allowing individual states to create separate regulatory frameworks for these markets. He described such an arrangement as a “fragmented patchwork” that undermines consumer protection and increases fraud vulnerability.
The current disputes represent a broader trend. Eleven states altogether — including Nevada, New Jersey, New York, Maryland, and additional jurisdictions — have pursued enforcement measures against prediction market operators.
Nevada’s Gaming Control Board recently obtained a temporary restraining order targeting Kalshi, with judicial proceedings scheduled for Friday.
Future Legal Proceedings
Congressional action is also underway. Legislative proposals would prohibit sports-focused event contracts completely and prevent political insiders from participating in prediction markets connected to military operations.
The CFTC has scheduled appearances before the Ninth Circuit Court of Appeals in late April. The consolidated proceedings include Kalshi, Robinhood, and the North American Derivatives Exchange.
Federal regulators note that the CFTC formally acknowledged event contracts in 1992 and has maintained regulatory jurisdiction continuously since that time.
