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The Commodity Futures Trading Commission took legal action April 2, filing lawsuits against Arizona, Connecticut and Illinois. The move marks the latest flashpoint in an ongoing battle over regulatory authority over prediction markets.
The CFTC’s action expands a conflict between state gambling regulators and federal financial authorities over the control of event contracts.
In its complaints, the CFTC argues that the Commodity Exchange Act (CEA) grants it “exclusive jurisdiction” over event contracts traded on registered exchanges. All three states recently sought to prohibit activities by federally regulated prediction market platforms, despite the CFTC’s authority under the CEA.
Defining commodities versus online gambling
Arizona took the most aggressive stance, bringing criminal charges against Kalshi, a CFTC-registered prediction market, in March 2026. The Arizona Attorney General’s Office filed the charges covering contract sales related to the 2028 presidential election, the 2026 Arizona gubernatorial election, player proposition contracts and the passage of specific federal legislation.
Connecticut and Illinois took different approaches. Connecticut’s Department of Consumer Protection and the Illinois Gaming Board issued cease-and-desist letters to CFTC-regulated firms, arguing that prediction markets constitute unlicensed online gambling under state laws.
Connecticut Attorney General William Tong’s order specifically named Kalshi Inc., Crypto.com and Robinhood Derivatives.
The CFTC opted to act preemptively rather than waiting for further state escalation. The regulator is asking federal courts for declaratory judgments and permanent injunctions to prohibit states from applying gambling laws to activities already regulated by the federal government.
State officials vow continued legal battle
The CFTC maintains that event contracts fall squarely under federal jurisdiction. Since 1992, the agency has permitted the trading of event contracts on federally registered exchanges. Officials say allowing individual states to regulate these markets separately would create “chaos” for consumers and firms.
CFTC Chairman Michael S. Selig defended the agency’s position in a statement, noting that Congress previously rejected state-by-state regulation because it led to weaker consumer protections and a higher risk of fraud.
However, state officials remain defiant. Illinois Attorney General Kwame Raoul characterized prediction markets as “gambling, plain and simple,” asserting that the state would not allow companies to scam residents.
Illinois Gov. J.B. Pritzker echoed those sentiments. “We will not stand idly by as firms continue to rake in millions selling these unregulated gaming products while Illinois consumers are afforded no protections,” Pritzker said.
Federal courts decide market regulatory future
While most states have historically focused enforcement on unregulated companies, Arizona’s attempt to prosecute a federally registered exchange marked a significant escalation.
On April 10, US District Judge Michael T. Liburdi granted a temporary restraining order in the Arizona case, blocking the state from continuing its criminal prosecution of Kalshi. Liburdi noted the CFTC is likely to succeed in its argument that federal law preempts state gambling statutes in this field.
The 9th U.S. Circuit Court of Appeals is expected to hear arguments later this month in a related case involving the North American Derivatives Exchange, Kalshi and Robinhood. Legal experts suggest the outcome could set up a “circuit split” if the 9th Circuit disagrees with the 3rd Circuit’s earlier ruling, potentially sending the issue to the US Supreme Court.
