The Commodity Futures Trading Commission (CFTC) is fighting back in the current legal battle unfolding between state governments and prediction market businesses like Kalshi and Polymarket by suing the state of Illinois.
The government agency is targeting officials and authorities within the state, including Illinois Governor JB Pritzker, state Attorney General Kwame Raoul and the gaming board, for what it says is unlawful efforts to regulate prediction markets, usurping the exclusive federal authority of the CFTC.
Defendants misapprehend prediction markets, claim states
The CFTC accuses the state of Illinois of acting against the constitution by conflating “swaps” with “wagers”, allowing them to regulate and licence companies via its gaming board.
In its complaint, the agency states: “Defendants’ attempt to regulate these DCMs interferes with plaintiffs’ exclusive authority to uniformly regulate and monitor this congressionally defined market.. This court should put an end to the ongoing efforts by defendants to undermine the uniform application of federal law.”
The legal challenges also cite the Supremacy Clause of the U.S. Constitution, contending that federal authority overrides any conflicting state laws. The CFTC is asking the court to issue a permanent injunction barring Illinois and other states from applying their regulations to platforms the agency views as operating under federal oversight.
The move comes after Illinois sent cease and desist letters to prediction market businesses such as Polymarket and Kalshi.
Polymarket applauded the move. In a statement, they said: “Prediction markets are federally regulated financial instruments, and we applaud the CFTC for taking action to defend these important markets.”
Two other states targeted in lawsuit
Connecticut and Arizona have also been included in the legal proceedings brought by the CFTC. Connecticut issued cease-and-desist orders in December to Kalshi, Robinhood and Crypto.com over their operations.
In Arizona, authorities escalated enforcement last month by filing criminal charges against Kalshi, alleging the platform offered unlicensed sports and election betting within the state. The charges were filed just days after Kalshi sued Arizona officials in anticipation of such action.
Both states have attracted the ire of CFTC chair Michael Selig. In a statement announcing the legal action, Selig said: “The CFTC will continue to safeguard its exclusive regulatory authority over these markets and defend market participants against overzealous state regulators,
“This is not the first time states have tried to impose inconsistent and contrary obligations on market participants, but Congress specifically rejected such a fragmented patchwork of state regulations because it resulted in poorer consumer protection and increased risk of fraud and manipulation.”
Earlier this year, the CFTC issued an advisory outlining its initial approach to regulating prediction markets. The agency released an Advanced Notice of Proposed Rulemaking, an early step in the rulemaking process that seeks public feedback before a formal proposal is developed. The CFTC said comments will be accepted for 45 days following the notice’s publication.
In addition, the agency’s Division of Market Oversight plans to provide guidance to companies offering event-based contracts.The advisory signaled a supportive stance toward innovation, noting that prediction markets can serve as valuable information sources for media organizations, sports leagues, financial firms and the broader public.
Lawmakers hit back on legal action
In response to the lawsuit, a spokesperson for Governor Pritzker issued a statement accusing the administration of facilitating illegal trading practices. They said: “The Trump Administration is carrying water for companies driving well-documented and lucrative insider trading schemes,
“These firms are making record profits while exposing Illinoisans to gaming products with no basic consumer protections or oversight. This is a blatant attempt to sidestep the State’s jurisdiction and put profits ahead of consumers. Illinois isn’t backing down, we will continue to fight to protect Illinois consumers.”
William Tong, Attorney General of Connecticut, also criticized the CFTC’s position: “The Trump Administration is recycling industry arguments that have been rejected in district courts across the country. These contracts are plainly unlicensed illegal gambling under time-worn state law, and we will aggressively defend Connecticut’s commonsense consumer protection laws.”
In total, there are more than 30 active cases brought by state governments against prediction markets across the country.
The lawsuits and each of those cases are likely to serve as a key test of how far federal authority extends over emerging financial products that blur the line between trading and gambling.
A ruling could shape the future of prediction markets across the country, determining whether they remain under a unified federal framework or face a patchwork of state-by-state regulation. For now, the outcome of the dispute will be closely watched by regulators, industry operators and lawmakers alike as the boundaries of oversight continue to be contested.
