The Feds Are Suing Three States to Keep Prediction Markets Alive – Here’s Why

TLDR

• The CFTC and DOJ sued Illinois, Connecticut, and Arizona over their attempts to shut down prediction market platforms.
• States sent cease-and-desist letters to platforms like Kalshi and Polymarket, calling their products illegal gambling.
• The CFTC argues it has exclusive federal jurisdiction over prediction markets under the Commodity Exchange Act.
• 11 states total have taken legal action against prediction market platforms.
• CFTC Chairman Mike Selig warned the states’ actions risk destabilizing markets for participants and registered firms.

The CFTC filed separate lawsuits against Illinois, Connecticut, and Arizona this week after those states tried to shut down prediction market platforms including Kalshi and Polymarket. The federal regulator says Congress gave it sole authority over these markets. The states say the platforms are just running illegal gambling operations.

The CFTC sued Illinois officials over state efforts to regulate prediction markets, as the multi-billion-dollar industry continues to surge despite some efforts to limit the exchanges https://t.co/zle45j8pvc

— Bloomberg (@business) April 2, 2026

The Commodity Futures Trading Commission and the US Department of Justice filed the lawsuits on Thursday, April 2, 2026.

The dispute started when the three states sent cease-and-desist letters to prediction market companies in 2025. The letters claimed that the platforms were offering sports betting products that needed to be licensed under state gambling laws.

The CFTC disagrees. It argues that prediction markets offer event contracts, which are a type of derivative swap. Under the Commodity Exchange Act, those products fall under federal — not state — jurisdiction.

“Event contracts are derivative instruments that enable parties to trade on their predictions about whether a future event will occur,” the Illinois lawsuit filing said.

The CFTC’s lawsuit against Illinois targets Governor JB Pritzker, Attorney General Kwame Raoul, and the Illinois Gaming Board. The board had classified event contracts as “wagers” or “sports betting,” which the CFTC says was a misclassification.

Illinois pushed back hard. A spokesperson for Governor Pritzker said the Trump administration was “carrying water for companies driving well-documented and lucrative insider trading schemes.”

States vs. Federal Authority

The state also accused the platforms of making “record profits” while offering products with “no basic consumer protections.” It said Illinois would continue to fight to protect its residents.

CFTC Chairman Mike Selig said the states had gone too far. “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 said.

Selig also said Congress had already rejected the idea of states each setting their own rules for these markets, calling it a “fragmented patchwork” that leads to worse consumer protection and more fraud risk.

The @CFTC has clear and longstanding exclusive jurisdiction to regulate prediction markets. But recently, state regulators have tried to impose inconsistent and contrary obligations on CFTC-registered prediction markets. In response, the CFTC and @TheJusticeDept today filed three…

— Mike Selig (@ChairmanSelig) April 2, 2026

This is not an isolated case. Eleven states in total — including Nevada, New Jersey, New York, Maryland, and others — have taken legal action against prediction market platforms.

Nevada’s Gaming Control Board recently secured a temporary restraining order against Kalshi, with a court hearing scheduled for Friday.

What Comes Next

Congress is also involved. Lawmakers are pushing legislation that would ban sports-related event contracts entirely and stop political insiders from using prediction markets tied to military conflicts.

The CFTC is set to appear before the Ninth Circuit Court of Appeals later in April. That consolidated case involves Kalshi, Robinhood, and the North American Derivatives Exchange.

The CFTC says it first officially recognized event contracts back in 1992 and has held regulatory authority ever since.