Key Takeaways
- Federal regulators launched lawsuits against Illinois, Connecticut, and Arizona for targeting prediction market operators.
- These states issued cease-and-desist orders to platforms such as Kalshi and Polymarket, categorizing them as unlicensed gambling services.
- Federal authorities claim sole regulatory power over prediction markets through the Commodity Exchange Act.
- A total of 11 states have pursued enforcement actions against prediction market companies.
- CFTC leadership cautioned that state interventions threaten market stability for users and regulated entities.
Federal authorities have taken legal action against Illinois, Connecticut, and Arizona following their crackdowns on prediction market operators like Kalshi and Polymarket. The central question: does regulatory power belong to federal agencies or individual states?
The Commodity Futures Trading Commission, working alongside the US Department of Justice, initiated these legal proceedings on Thursday, April 2, 2026.
The confrontation began when the three states distributed cease-and-desist notices to prediction market operators throughout 2025. State officials maintained these platforms operated sports wagering services requiring state-level gambling licenses.
Federal regulators reject this characterization entirely. They maintain prediction markets facilitate event contracts, which qualify as derivative swaps. According to the Commodity Exchange Act, such financial products require federal—not state—oversight.
“Event contracts are derivative instruments that enable parties to trade on their predictions about whether a future event will occur,” federal court documents in the Illinois case stated.
The Illinois lawsuit names Governor JB Pritzker, Attorney General Kwame Raoul, and the Illinois Gaming Board as defendants. State regulators had designated event contracts as “wagers” or “sports betting,” a classification federal authorities dispute.
State officials responded forcefully. A representative for Governor Pritzker accused the Trump administration of “carrying water for companies driving well-documented and lucrative insider trading schemes.”
The Jurisdictional Standoff
Illinois officials further criticized the platforms for generating “record profits” while providing products lacking “basic consumer protections.” The state pledged to continue defending its regulatory authority.
CFTC Chairman Mike Selig countered that states exceeded their authority. “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 stated.
Selig emphasized that Congress deliberately chose federal oversight to prevent states from creating their own conflicting regulations—what he termed a “fragmented patchwork” that undermines consumer safeguards and increases fraud vulnerability.
The situation extends far beyond these three states. Eleven jurisdictions altogether—including Nevada, New Jersey, New York, Maryland, and others—have initiated enforcement measures against prediction market operators.
Nevada’s Gaming Control Board recently obtained a temporary restraining order against Kalshi, with judicial proceedings scheduled for Friday.
Looking Ahead
Congressional lawmakers are entering the fray as well. Proposed legislation seeks to prohibit sports-related event contracts completely and prevent political insiders from participating in prediction markets connected to military operations.
The CFTC will present arguments before the Ninth Circuit Court of Appeals in late April. This consolidated proceeding involves Kalshi, Robinhood, and the North American Derivatives Exchange.
Federal regulators note their agency first formally acknowledged event contracts in 1992 and has maintained regulatory oversight continuously since that time.
