The Commodity Futures Trading Commission has joined a court battle against states to protect its ability to regulate prediction markets, which have become increasingly popular with consumers and have created controversy in recent months.
Some states have sought to regulate event-contract platforms, such as the prediction markets Kalshi and Polymarket, arguing, particularly for sports contracts, that they are akin to gambling and that state gambling laws have authority over them, not the CFTC.
CFTC Chairman Michael Selig announced that his agency has filed an amicus, or friend-of-the-court, brief in federal court emphasizing the commission’s federal role in regulating prediction markets.
The brief was filed in the Ninth U.S. Circuit Court of Appeals after a federal judge sided with the Nevada Gaming Control Board and issued a temporary restraining order against Kalshi in the state.
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“To those who seek to challenge our authority in this space, let me be clear, we will see you in court,” Selig said in a video message.
He said that prediction markets have been “hit with an onslaught” of litigation from various states. Selig pointed out that the CFTC has regulated such markets for over two decades and that the platforms provide “useful functions for society.”
At the heart of some of these legal challenges from states is the claim that the event-contract platforms have skirted state sports betting laws by offering sports-based contracts.
Kalshi, Polymarket, and other prediction markets offer event contracts that allow users to wager on outcomes.
Prediction markets began receiving major attention during the 2024 elections, during which President Donald Trump bested then-Vice President Kamala Harris. Many pollsters predicted that Harris had the edge or that it would be an exceedingly close contest, with some calling the race a coin flip.
Kalshi users, on the other hand, were implying notably higher odds for Trump. They were vindicated when Trump secured a decisive victory and won every major swing state.
While the exchanges allow users to wager on things such as politics and the weather, critics of the platforms highlight that the platforms have leaned further into sports contracts.
“Mike, I appreciate you attempting this with a straight face, but I don’t remember the CFTC having authority over the “derivative market” of LeBron James rebounds,” Gov. Spencer Cox (R-UT), posted in response to Selig’s video announcement.
Cox said that prediction markets are gambling “pure and simple.”
“They are destroying the lives of families and countless Americans, especially young men. They have no place in Utah,” Cox continued. “Let me be clear, I will use every resource within my disposal as governor of the sovereign state of Utah, and under the Constitution of the United States to beat you in court.”
Demand Progress Education Fund, a group that aims to limit corporate power, released a statement lambasting the CFTC over the move.
“The 2008 financial crisis happened because we let bankers gamble on housing,” the group’s policy director Emily Peterson-Cassin said. “Now the CFTC is trying to let gamblers gamble on every aspect of life. By moving to crush state safeguards for prediction markets in court, the CFTC is giving gambling companies a green light to prey on all Americans and is setting the stage for another financial crisis.”
The amicus brief was filed a week after the CFTC announced the formation of an Innovation Advisory Committee, as the agency works to modernize its rules and regulations. The group includes the CEOs of some of the prediction markets that states are targeting.
Prediction markets have received particular attention in recent months over accusations of insider trading. Kalshi announced a major expansion of its market surveillance and enforcement structure in response to the scrutiny.
Notably, recent accusations of insider trading following the capture of former Venezuelan dictator Nicolas Maduro came from Polymarket, which has its main exchange operating internationally.
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In a Wall Street Journal op-ed, Selig pushed back on claims from critics that the prediction exchanges are the “Wild West,” and said they are “examined and supervised by experienced CFTC staff.”
“America is home to the most liquid and vibrant financial markets in the world because our regulators take seriously their obligation to police fraud and institute appropriate investor safeguards,” Selig wrote. “Any erosion of the CFTC’s ability to regulate transactions in commodity derivatives is a direct threat to the markets and investors Congress intended the agency to oversee.”
