CFTC Sues Utah to Protect Kalshi from State Gambling Ban

Image: Ars Technica · Source

The US Commodity Futures Trading Commission sued Utah to prevent enforcement of its gambling ban against Kalshi, marking the 10th state challenged over prediction market regulations.

The US Commodity Futures Trading Commission (CFTC) has filed a lawsuit against Utah to block the state's attempt to enforce its comprehensive gambling prohibition against Kalshi, a federally registered prediction market platform. This legal action represents the tenth state the CFTC has targeted in its ongoing effort to assert federal authority over prediction markets against conflicting state gambling laws.

Utah, which constitutionally bans all forms of gambling, initiated a state lawsuit aiming to stop Kalshi from offering bets on sports, elections, politics, and other events within its jurisdiction. Utah’s Attorney General, Derek Brown, emphasized the state's longstanding legal stance that gambling is not permitted, highlighting that Kalshi's operations violate these statutes.

Kalshi previously filed a federal lawsuit seeking to preempt Utah's enforcement actions, but the federal district court ruled in favor of Utah, affirming that federal law does not preempt state anti-gambling enforcement. This ruling upheld Utah’s ability to apply its gambling laws despite Kalshi's contention that the Commodity Exchange Act (CEA) grants exclusive regulatory jurisdiction to the CFTC over such markets.

In response, the CFTC initiated its own lawsuit in the same federal court system, asserting that Congress intended the CFTC to have exclusive regulatory authority over swaps—including event contracts sold on prediction markets—and that state efforts like Utah's constitute an unlawful interference with this federal jurisdiction. The CFTC argues that prediction markets serve important functions beyond gambling, such as providing public information on future events.

This dispute arises amidst a circuit court split, with some federal appeals courts siding with the CFTC and others upholding state gambling regulations against prediction markets. For instance, the Third Circuit sided with federal jurisdiction, while the Sixth and Ninth Circuits have ruled in favor of states. As a result, the Supreme Court is expected to hear a case to resolve this conflict.

Kalshi's challenges have implications for other regulated entities like Polymarket and major sports betting operators DraftKings and FanDuel, both registered with the CFTC and operating in states with varying gambling laws.

With 10 states now sued by the CFTC to halt enforcement actions against prediction markets, this legal battle centers on the balance between federal regulatory authority under the CEA and state rights to enforce gambling prohibitions. The upcoming Supreme Court decision will be pivotal in defining the regulatory landscape for prediction markets across the United States.