The Commodity Futures Trading Commission is asserting federal authority over fast-growing prediction markets with lawsuits against Illinois, Connecticut and Arizona that challenge state efforts to regulate the multibillion-dollar industry.
The agency is seeking injunctions against officials including Illinois Governor JB Pritzker and Connecticut Governor Ned Lamont, as well as the states' respective attorneys general and gaming boards. The CFTC said the states have sent cease-and-desist letters to companies including Kalshi and Crypto.com to force them to abide by state gambling laws.
"This unprecedented measure by the CFTC is necessary to protect the exclusive jurisdiction" granted to the regulator by Congress, the agency said in a memo.
The complaints are the latest escalation in the legal fight over prediction markets, which allow customers to bet on issues ranging from geopolitical events to sports.
State officials have argued the federally-regulated exchanges should fall under their jurisdiction while the CFTC counters it has the sole authority to regulate the platforms, which the agency views as derivatives exchanges.
Connecticut Attorney General William Tong said the Trump administration was "recycling industry arguments" that have already been rejected in federal courts.
"These contracts are plainly unlicensed illegal gambling under time-worn state law, and we will aggressively defend Connecticut's commonsense consumer protection laws," Tong said.
Academics and attorneys emphasized how rare it was for the CFTC to directly sue a state. Ronald Filler, a longtime scholar of CFTC history, said he wasn't aware of any instance when the agency had sued a state in its 50-year history.
"I have never heard of that before in my life," said Filler, director of the center on financial services law at New York Law School.
Under the Trump administration, the CFTC has embraced prediction markets, an about-face from Biden-era regulators. In 2024, the agency issued a proposal that called for banning sports and politics-related trades on prediction markets, with its then-chairman arguing he didn't want to turn into an "election cop."
Earlier this year, CFTC Chairman Michael Selig rescinded that proposal and vowed to craft new rules for the industry.
President Donald Trump's family has also entered the space. His son, Donald Trump Jr., became an advisor to both Kalshi and Polymarket, and Trump Media & Technology Group Corp. announced its own marketplace.
While the three states in the CFTC's crosshairs are led by Democrats, prediction markets have also prompted criticism from Republicans. In Utah, GOP Governor Spencer Cox called the event contracts "gambling — pure and simple" and in Ohio gaming officials have sought to force Kalshi to follow state laws.
Despite the CFTC's growing involvement, many experts say the legal skirmishes will likely continue until the issue reaches the Supreme Court.
"In terms of legal merits, I don't think this changes anything," said Kevin Frankel, a lawyer at Benesch. "Part of me wishes we could cut to the chase and just have representatives from half a dozen state solicitors generals' offices go to the Supreme Court."
The cases are US v. Illinois, 26-cv-3659, U.S. District Court, Northern District of Illinois (Chicago); U.S. v. Connecticut, 26-cv-498, U.S. District Court, District of Connecticut; and U.S. v. Arizona, 26-cv-2246, U.S. District Court, District of Arizona.
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