The battle between state gaming regulators and prediction markets took some more twists on Friday that included the Commodity Futures Trading Commission (CFTC) suing the state of New York.
The legal action followed NY Attorney General Letitia James (D) filing lawsuits against Coinbase Financial Markets and Gemini Titan for promoting illegal gambling in the state. The CFTC suit alleges the actions by the attorney general are in direct violation of federal law.
“New York’s attempt to shut down federally regulated markets intrudes on the exclusive federal scheme Congress designed to oversee national swaps markets,” the lawsuit reads.
‘Quintessentially Gambling’
The legal back and forth comes after months of controversy surrounding prediction markets’ foray into sports betting event contracts a year ago. State gaming regulators have argued that these markets amount to sports betting and should be regulated by state gaming regulators.
Prediction firms claim their offerings are different from traditional sports betting and solely regulated by the CFTC. The commission has emphasized that idea in recent weeks and announced similar lawsuits against Arizona, Connecticut, and Illinois earlier this month.
In New York, James has said prediction markets are “quintessentially gambling” and need a license from the New York State Gaming Commission to operate in the Empire State, according to Reuters.
James and Gov. Kathy Hochul (D) accused the Trump administration of ignoring the need to protect New York users of the platforms.
“New York’s gambling laws are designed to protect consumers, whether they are placing bets in a prediction market or a casino,” James and Hochul said in a joint statement.
“When gambling platforms, including prediction markets, violate our laws, we will not hesitate to hold them accountable. We look forward to continuing to defend our laws in court.”
CFTC Files Amicus Brief In Massachusetts Case
In related news, the CFTC filed an amicus brief in a Massachusetts case with the state’s supreme court last week. As in New York, the commission is attempting to affirm its exclusive role to regulate prediction markets.
An amicus brief allows a group or person not directly involved in a lawsuit, but with a stake in the outcome, to file an opinion on the case. The move comes after a Massachusetts judge granted a preliminary injunction against Kalshi in January, barring the company from offering sports contracts in the state.
The amicus brief outlines the history and structure of the Commodity Exchange Act and describes how the law pre-empts state laws regarding CFTC-regulated markets.
“Some states continue to pursue ever-escalating, illegal enforcement actions against CFTC-regulated exchanges, despite rulings from multiple courts halting those efforts,” CFTC Chairman Michael S. Selig said. “Congress has entrusted the CFTC with the sole authority to regulate commodity derivatives markets, including prediction markets. To any state that seeks to nullify federal law and seize authority over these markets, I say again: We will see you in court.”
In March, a federal judge in Ohio ruled that Kalshi must follow state gaming laws. Regulators in Tennessee sent cease-and-desist letters to three prediction market companies in January.
Former Trump White House Chief of Staff Mick Mulvaney recently said the platforms are more like traditional gambling than actual investing. He said state gaming regulators should oversee the industry.
