Key Takeaways
- Wisconsin becomes the fifth state targeted by CFTC litigation over prediction market regulatory authority this month.
- Last week, Wisconsin filed suit against Kalshi, Polymarket, Crypto.com, Robinhood (HOOD), and Coinbase (COIN), alleging unlicensed gambling violations.
- CFTC Chairman Michael Selig maintains the federal agency holds “exclusive jurisdiction” over event contract prediction markets under U.S. law.
- Similar federal lawsuits have been initiated against New York, Arizona, Connecticut, and Illinois during the same period.
- An Arizona court has already halted criminal proceedings against Kalshi, indicating federal statutes may supersede state gaming regulations.
On Tuesday, the federal commodities regulator initiated legal action against Wisconsin following the state’s enforcement actions targeting five prediction market operators for allegedly conducting unlicensed gambling activities. The CFTC contends that state-level regulations have no bearing in this domain.
Last Thursday, Wisconsin initiated litigation against Kalshi, Polymarket, Crypto.com, Robinhood, and Coinbase. State authorities contended that prediction markets facilitating sports-related event contracts constitute illegal wagering under Wisconsin’s gambling statutes.
The federal response came swiftly. The CFTC, working alongside the Justice Department’s Civil Division, filed a counterclaim in the U.S. District Court for the Eastern District of Wisconsin.
This marks the fifth instance this month where the commodities regulator has challenged a state government over prediction market oversight. Previous legal actions targeted New York, Arizona, Connecticut, and Illinois.
Michael Selig, the CFTC Chairman, has spearheaded this aggressive legal campaign. He presently serves as the only sitting member of what should be a five-commissioner body.
In a public statement, Selig declared: “States cannot circumvent the clear directive of Congress. Our message to Wisconsin is the same as to New York, Arizona, and others: if you interfere with the operation of federal law in regulating financial markets, we will sue you.”
According to the CFTC, prediction markets function as derivatives instruments. The agency maintains these contracts belong under federal supervision as designated contract markets, placing them outside the scope of state gambling legislation.
Jurisdictional Conflict Between Federal and State Powers
The fundamental question centers on whether states or federal authorities possess the legitimate power to oversee prediction markets. The CFTC maintains that Congressional legislation granted it sole regulatory jurisdiction over such financial instruments.
State governments push back against this interpretation. They contend that sports-related event contracts represent gambling products requiring state gaming authorization. Multiple states have initiated both civil litigation and criminal prosecutions against these platforms.
Recently in Arizona, judicial proceedings halted a criminal case targeting Kalshi. The presiding judge indicated the CFTC appears positioned to successfully demonstrate that federal legislation takes precedence over state gaming laws.
Relief Sought by the Federal Agency
The CFTC’s Wisconsin filing names Governor Anthony Evers, Attorney General Josh Kaul, and the Wisconsin Gaming Division as respondents.
The agency is seeking a judicial determination that state gambling statutes do not govern federally supervised prediction markets. Additionally, it requests a permanent injunction preventing Wisconsin from pursuing enforcement actions against these platforms.
Coinbase and Robinhood, both listed on public exchanges, appear among the platforms identified in Wisconsin’s state-level complaint. Gemini was separately named in New York’s distinct lawsuit targeting Coinbase.
New York filed its own action against Coinbase and Gemini last week concerning their prediction market offerings. The CFTC countered with federal litigation against New York within days.
At publication time, the Wisconsin Department of Justice, the Division of Gaming, and Governor Evers’ office had not provided responses to media inquiries.
