The U.S. Commodity Futures Trading Commission (CFTC) has filed a lawsuit against New York in the U.S. District Court for the Southern District of New York, seeking to block the state from applying its gambling laws to federally regulated prediction market platforms. The move is the latest in a series of actions by the agency to assert its exclusive regulatory authority over event-based contracts.
The CFTC argues that federal law designates it as the sole regulator of commodity futures, options, and swaps traded on federally regulated exchanges, and that state laws are preempted in this area. The complaint requests both a declaratory judgment and a permanent injunction against New York's enforcement actions. The lawsuit follows similar CFTC actions against Arizona, Connecticut, and Illinois.
The legal clash was triggered earlier this week when New York sued cryptocurrency exchanges Coinbase and Gemini, claiming their prediction market offerings violated state gambling laws. The state had previously targeted Kalshi, ordering it to cease its sports wagering platform. CFTC Chairman Mike Selig stated, 'CFTC-registered exchanges have faced an onslaught of state lawsuits seeking to limit Americans’ access to event contracts and undermine the CFTC’s sole regulatory jurisdiction over prediction markets.'
State authorities are pushing back. On the same day the CFTC filed its suit, a coalition of 37 state attorneys general, including New York Attorney General Letitia James, filed an amicus brief in a related Massachusetts case, arguing that federal derivatives law was not intended to legalize sports betting and does not clearly override state jurisdiction. They warned that accepting the federal argument could weaken consumer protections. New York Attorney General Letitia James and Governor Kathy Hochul said in a joint statement, 'Once again, this administration is prioritizing big corporations over consumers and New Yorkers’ best interests.'
The dispute comes as prediction markets like Kalshi and Polymarket expand and attract institutional attention. The outcome of these legal battles will determine whether prediction markets are treated as financial derivatives under federal law or as gambling products subject to state control, potentially shaping the industry's growth across the U.S.
