Fantasy sports operator Sleeper has initiated legal action against the Commodity Futures Trading Commission and its sole acting chairman, alleging that the agency’s “arbitrary and capricious” actions have resulted in the impermissible delay of the National Futures Association’s approval of Sleeper’s application to register as a futures commission merchant.
Gaining FCM registration would allow Sleeper to offer predictions through its platform via a partnership with designated contract markets like Kalshi or Crypto.com.
Sleeper was reportedly told by the National Futures Association its application was nearing registration approval, though the CFTC allegedly told the NFA to withhold registration.
Timeline of Sleeper application
The operator’s dispute was originally brought to the public’s attention via Sleeper’s filing of a complaint to the Offices of the Inspectors General of the CFTC and the Department of the Treasury. Therein, Sleeper “respectfully and formally request that the Inspectors General conduct an investigation into the Commission and recommend corrective or disciplinary action as appropriate,” while setting forth the following timeline and reasons as the basis for its demand:
- On May 30, 2025, Sleeper submitted its application to the NFA for registration as an FCM in order to expand its offering past fantasy sports services and serve as a broker in the derivatives markets and allow its customer to buy and sell products traded on CFTC-regulated DCMs.
- Three months following submission of its application, the NFA informed Sleeper that its application was complete and that registration would be approved by Sept. 4.
- Shortly thereafter, CFTC staff instructed the NFA not to approve Sleeper’s FCM application and to withhold registration until further notice was provided.
- Following inquiry by Sleeper’s counsel, the CFTC informed Sleeper that its application was believed to be incomplete. Sleeper’s counsel responded by issuing a formal demand letter to the CFTC and its acting chairman that (i) detailed concerns regarding the CFTC’s conflicting position with the NFA regarding Sleeper’s application, (ii) notified the commission of its wrongful behavior in violation of applicable law and Sleeper’s rights, and (iii) demanded that Sleeper’s application be approved without further delay.
- Despite initial communications with the CFTC in attempts to resolve, the CFTC has refused to provide any further information or otherwise respond to Sleeper’s counsel regarding the status of Sleeper’s application.
- Throughout it all, the NFA continues to maintain that Sleeper’s FCM application is complete and ready for approval.
Sleeper alleges CTFC’s conduct violates constitution
The root of Sleeper’s lawsuit stems from its assertion that
- Approval of an FCM application is subject only to the initial review and approval of the NFA;
- The statutory provision contained within the Commodity Exchange Act that governs approval states any person wanting to register as an FCM “shall be registered upon application,” removing any impression of discretionary authoritative power relating to the approval process;
- Only in specific circumstances tied to an applicant’s prior misconduct may be approval be denied, but only after an opportunity for the applicant to be present its case as to why approval should still be rendered;
- The CFTC only has the power to oversee and review final decisions of the NFA.
Sleeper’s complaint summarizes the operator’s position:
[T]he law is clear – an application like Sleeper’s must be approved once NFA deems it to be complete and concludes that no disqualifying circumstances exist. Only at that point can the CFTC decline review or grant review and affirm, set aside, or modify an NFA registrations order, or review the granting of a registration application by NFA….That is all the power Congress gave the CFTC. It has grossly exceeded that authority here.
Two causes of action
Based on the foregoing, Sleeper brings the following two causes of action against the CFTC:
- Violation of Due Process Clause (Fifth Amendment of Constitution) – Sleeper argues that its submission of a satisfactory application for registration as an FCM created a property interest in its pursuit of FCM business activities, which interest was confirmed once the NFA stated that its application was complete and ready for approval. As a result of the CFTC’s actions in interfering with and precluding the NFA’s approval of Sleeper’s application without any good faith basis under applicable law or necessary due process, Sleeper contends that it has been wrongfully deprived of such property interest in violation of the fifth amendment.
- Violation of Administrative Procedure Act – The Administrative Procedures Act provides for judicial review of certain agency actions, and requires the reviewing court to set aside any “agency action, findings, and conclusions” found to be, among other things, “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” Sleeper alleges that the CFTC’s action in instructing the NFA not to approve Sleeper’s FCM application, followed by the CFTC’s inaction in refusing to respond to requests for immediate approval absent citation to a disqualifying circumstance, is a violation warranting judicial intervention ordering the agency to comply with the CEA (i.e. approve Sleeper’s application and allow registration as an FCM).
Unfair treatment by CFTC?
Sleeper’s complaint claims that the reason for the CFTC’s intrusion is “driven by unspecified concerns harbored by the Commission regarding the propriety of certain types of derivatives that are or will be listed on DCMs.”
Sleeper argues that this is not a valid reason for disapproval because, as an FCM, Sleeper would simply serve as a conduit between its customers and the contracts listed (and controlled) by DCMs; thus, any issue relating to such listed contracts should be raised with the DCM itself.
Sleeper’s belief is noteworthy considering that less than a week prior to the filing of its lawsuit, another fantasy sports operator, PrizePicks, received NFA approval to register as an FCM.
