The Commodity Futures Trading Commission filed a federal lawsuit against Kentucky, an action that 16 Senators want to see stopped.
It is the agency’s latest move in a broader legal campaign to assert exclusive regulatory authority over prediction markets like Kalshi and Polymarket.
The CFTC complaint asks for an injunction blocking Kentucky from enforcing state laws against federally regulated designated contract markets, arguing the state’s actions obstruct Congress’s decision to federally preempt state law on commodity derivatives. Kentucky passed a law this year attempting to create a tax on the operators.
U.S. Sens. Richard Blumenthal and Jeff Merkley, along with 14 other signing supporters, have asked the Senate Appropriations Subcommittee on Financial Services and General Government to prohibit the CFTC from using federal funds concerning prediction markets lawsuits.
Litigation creates ‘race-to-the-bottom’
Blumenthal and Merkley say the lawsuits will fuel a gambling public health crisis and interfere with states’ rights on regulating or restricting gambling.
“Through engaging in this campaign of litigation and intimidation, the CFTC risks becoming an instrument and enabler of online prediction markets’ efforts to bypass states’ consumer protections and oversight, creating a race-to-the-bottom in gambling,” the two said in a press release Thursday.
What is in CFTC-KY suit?
CFTC Chairman Michael Selig said Kentucky is the latest state attempting to shut down federally regulated event contracts and that the agency is committed to maintaining its exclusive jurisdiction over prediction markets.
The CFTC contends that regulation of prediction markets falls within its federal authority over swaps and derivatives, which it claims encompasses event contracts.
Selig has said prediction markets provide Kentuckians with valuable information about the likelihood of future events and offer risk management products relied on by Kentucky businesses and individuals.
Prediction markets lawsuit against KY
Earlier this month, a coalition of prediction markets sued Kentucky over the commonwealth’s recently passed legislation that creates a new tax on the industry.
The coalition argues the tax is discriminatory and preempted by the oversight of the federal CFTC.
“By the Commonwealth’s reasoning, federally regulated prediction markets are akin to gambling,” the complaint says. “Yet, here, Kentucky’s tax sets a higher rate on prediction markets than for the Commonwealth’s favored incumbent industry.”
The CFTC says Kentucky’s effort to restrict the functioning of CFTC-registered exchanges obstructs Congress’s decision to federally preempt state law over commodity derivatives.
Other states the CFTC has sued
The CFTC has now involved in legal proceedings against nine states:
- Arizona
- Connecticut
- Illinois
- Kentucky
- Minnesota
- New Mexico
- New York
- Rhode Island
- Wisconsin
In April, the CFTC first sued Arizona, Connecticut and Illinois together, accusing those states of attempting to “outlaw, regulate and otherwise restrain” prediction markets.
The CFTC has also submitted amicus briefs in existing cases at the U.S. Court of Appeals for the Sixth and Ninth Circuits as well as the Supreme Judicial Court of Massachusetts, arguing for federal authority over event contracts.
Kalshi’s lawsuit against Illinois
The CFTC’s Kentucky suit comes as Kalshi itself sued Illinois this week, challenging the state’s new sports prediction market law that would require prediction market platforms to obtain state licenses before operating. It is just the latest of a long string of lawsuits between Kalshi and states.
Kalshi filed the lawsuit in U.S. District Court for the Northern District of Illinois, targeting state officials including Gov. JB Pritzker, Atty. Gen. Kwame Raoul and Illinois Gaming Board members. The complaint argues SB 3019, signed into law last week, unlawfully interferes with the Commodity Exchange Act by treating sports event contracts as sports wagers subject to state licensing.
Kalshi contends the CFTC has exclusive authority over its event contracts because they are regulated under the CEA, the same argument the CFTC is making in its lawsuits against states.
What comes next with CFTC suits
The Kentucky lawsuit adds another front to the CFTC’s broader legal campaign, which could eventually land in federal appellate courts or the Supreme Court. The agency’s argument that event contracts are derivatives falls under federal authority, while states argue they are gambling subject to state law.
For prediction market operators, the legal uncertainty means they face the risk of conflicting state and federal rules, potential enforcement actions and ongoing litigation that could shape the industry’s future.
The CFTC’s jurisdiction fight is far from over, and the Kentucky suit is just the latest chapter in what could become a multi-year legal battle over federal versus state authority over prediction markets.
