US Department of Justice Steps into Prediction Market Suit Against Wisconsin

State of Play’s TL;DR

• The US government and the CFTC have sued Wisconsin to block the state’s enforcement of gambling laws against five CFTC-regulated prediction market platforms.
• If the federal case succeeds, contracts offered on designated contract markets would be treated as federally regulated swaps, limiting state power to bar those markets and directly affecting bettors and exchange operators nationwide.

The US Department of Justice has joined with the Commodity Futures Trading Commission (CFTC) to file suit in the US District Court for the Eastern District of Wisconsin seeking declaratory and injunctive relief against Wisconsin’s effort to enforce state gambling statutes.

Wisconsin’s Attorney General alleged that Kalshi, Coinbase, Robinhood, Polymarket, and Crypto.com facilitated illegal sports betting under state law.

The federal complaint argues Wisconsin law is pre-empted because the Commodity Exchange Act grants the CFTC exclusive jurisdiction over prediction markets. Further, the complaint says later federal statutes (including the Futures Trading Act, the Commodity Futures Modernization Act, and Dodd‑Frank) reinforced that pre-emption. Also, CFTC Rule 38.151(b) requires designated contract markets (DCMs) to provide impartial access nationwide, making state-by-state bans unworkable.

The complaint asserts event contracts on CFTC-regulated DCMs qualify as swaps under CEA Section 1a(47), not state-law “bets,” citing the Third Circuit’s reasoning in KalshiEX, LLC v. Flaherty. The federal government seeks a declaratory judgment, a permanent injunction against Wisconsin officials, and costs and fees.

Complaint doesn’t cover all types of contracts

A federal victory would limit states’ ability to block CFTC‑regulated prediction markets, making it easier for regulated DCMs and associated futures commission merchants to offer event contracts to US customers … even in states like Wisconsin that have attempted bans.

For bettors, that could mean broader access to regulated prediction markets, deeper liquidity, and standardized CFTC-backed protections and reporting requirements.

Operators named in the suit – ranging from niche DCMs like Kalshi to major exchanges and brokerages –would gain legal clarity but face continued federal oversight and compliance obligations under CFTC rules.

However, the complaint’s framing of many prediction contracts as swaps may not cover every contract type, leaving some platforms or product features exposed to state action.

Based on reporting by Steven Lofchie for Lexology.