The federal commodities regulator and a leading prediction market platform have taken two states to court over bans that limit trading on event outcomes. The Commodity Futures Trading Commission and Kalshi filed separate lawsuits against Minnesota and Rhode Island this week, arguing the states' restrictions on prediction markets violate federal law.
The legal challenge
Both suits claim the state-level bans are preempted by the Commodity Exchange Act, which gives the CFTC authority over futures and certain derivatives. Kalshi, a CFTC-registered exchange that lets users bet on things like election results and economic data, says the state rules effectively shut down its business in those jurisdictions. The CFTC joined as a plaintiff, asserting its exclusive jurisdiction over the products Kalshi offers.
The filings come after Minnesota and Rhode Island passed laws or issued enforcement actions targeting prediction markets. The states have argued the platforms resemble gambling and fall outside federal commodities oversight. The lawsuits ask courts to block the bans and declare them invalid.
What the states did
Minnesota's ban came as part of a broader crackdown on unlicensed gambling, while Rhode Island's action was tied to a specific enforcement order against Kalshi. Neither state has publicly responded to the lawsuits yet. The cases are likely to test how far states can go in regulating financial products that the CFTC already oversees.
Kalshi has been expanding its event contracts since receiving regulatory approval in 2020. The platform lets users trade on binary outcomes — yes or no — for questions ranging from weather to political races. State bans threaten that growth by limiting access in key markets.
What's at stake for prediction markets
Prediction markets have drawn scrutiny from both state and federal officials. Supporters argue they provide valuable information aggregation, similar to futures markets for commodities. Critics contend they can facilitate election interference or gambling addiction. The CFTC under its current leadership has taken a generally supportive stance toward regulated event contracts, but state pushback could fragment the industry.
The lawsuits put the preemption question front and center. If the courts side with the CFTC and Kalshi, other states with similar bans may face legal pressure. If the states prevail, prediction market operators might have to comply with a patchwork of state laws or pull out of those markets entirely.
The cases are in early stages. No hearing dates have been set. Both Minnesota and Rhode Island will now have to file responses in federal court, laying out their legal defenses. The outcome could shape the future of online event trading in the United States.
