The Commodity Futures Trading Commission (CFTC) filed a lawsuit against Wisconsin after the state sued five CTFC-regulated companies.
Key Takeaways
- Wisconsin filed a lawsuit against five prediction market operators.
- The CFTC countersued Wisconsin, claiming the state does not have jurisdiction over federally regulated prediction markets.
- The CFTC’s legal response mirrors its actions against other states that have either issued cease-and-desist orders or sued prediction market operators.
The CFTC announced Tuesday it filed a lawsuit against the state of Wisconsin. The lawsuit is in direct response to Wisconsin’s lawsuits against five prediction markets.
The Wisconsin Department of Justice announced it filed lawsuits last week against Kalshi, Robinhood, Polymarket, Coinbase, Crypto.com, and any affiliates of those prediction market platforms. The state claims the companies violate state gambling laws, specifically those regarding sports betting.
“Thinly disguising unlawful conduct doesn’t make it lawful,” said Wisconsin Attorney General Joshua Kaul. “These companies’ alleged facilitation of sports betting in Wisconsin should be shut down.”
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Official response
The CFTC regulates financial exchanges that offer futures contracts, including prediction markets. Last year, however, prediction markets started offering sporting event contracts that mimic sports betting, including the ability to trade on parlays and props.
Sports betting is regulated at the state level. Many states, including Wisconsin, take exception to prediction market sporting event contracts, which are unlicensed and unregulated at the state level. As a result, they believe prediction markets are in violation of state gambling laws. Clearly, the CFTC chairman disagrees.
“States cannot circumvent the clear directive of Congress,” said Chairman Michael S. Selig. “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.”
Suing is now the norm between prediction market operators, state and tribal regulators, and the CFTC. The prediction markets news is rife with new filings and court rulings. Just last week, the CFTC filed a lawsuit against New York and an amicus brief in support of Kalshi in its legal battle with Massachusetts regulators.
New York recently sued Coinbase and Gemini Titan, accusing the two prediction market platforms of illegal gambling. Meanwhile, Massachusetts and Kalshi have been embroiled in a legal battle for months. In January, Massachusetts regulators won a preliminary injunction, temporarily banning Kalshi from operating in the state. But that case may take many more months to resolve.
With dozens of lawsuits challenging the legality and/or regulatory jurisdiction of prediction markets, no single state lawsuit is going to resolve the issue. While the CFTC may have a regulatory stronghold on financial futures contracts, Congress has consistently deferred to the states to regulate sports betting. As a result, a Supreme Court decision may be the only path to resolve the current prediction markets legal logjam.
