CFTC takes Illinois, Arizona, Connecticut to court over prediction market oversight

US federal regulators filed lawsuits against Illinois, Arizona, and Connecticut over who controls prediction markets, pushing back against state-level enforcement actions.

The Commodity Futures Trading Commission, alongside the U.S. Department of Justice, launched separate legal actions on Thursday, arguing that state authorities have stepped beyond their remit by targeting platforms the agency considers federally regulated. 

The filings mark the first time the CFTC has taken a state to court over jurisdiction tied to prediction market activity.

At the center of the dispute is Illinois, where the case was filed in the US District Court for the Northern District of Illinois. 

The regulator named the state, Attorney General Kwame Raoul, and the Illinois Gaming Board, accusing them of attempting to shut down designated contract markets, or DCMs, which fall under federal oversight.

According to the complaint, Illinois had issued cease and desist notices over the past year to platforms such as Kalshi, Crypto.com, and Polymarket. 

State authorities argued that the event-based contracts offered by these firms amounted to unlicensed gambling products under local law.

Federal regulators pushed back on that interpretation, stating that such contracts qualify as swaps governed by the Commodity Exchange Act.

“Illinois’s attempt to shut down federally regulated DCMs intrudes on the exclusive federal scheme Congress designed to oversee national swaps markets,” the CFTC said in its filing, warning that continued state intervention risks undermining a unified regulatory structure.

Separate lawsuits against Arizona and Connecticut follow the same line of argument, reinforcing the agency’s position that state-level classifications of these products as wagers or sports betting conflict with federal law. 

The filings also invoke the Supremacy Clause of the US Constitution, asking courts to block states from enforcing rules that would restrict federally regulated markets.

Court documents further argue that, without intervention, state officials are likely to continue efforts that “subvert federal law” and interfere with the regulatory structure established by Congress for event contract swaps.

“These states' aggressive and overzealous attempts to overstep the CFTC have led to market uncertainty and risks destabilizing effects for market participants and our registrants,” CFTC Chairman Mike Selig said in a separate statement.

Several US states are pushing back against prediction markets

Legal pressure on prediction markets has been building across the country. In addition to the three states named in the lawsuits, regulators in Arizona, Nevada, Illinois, Maryland, New Jersey, Montana, Ohio, Connecticut, Tennessee, New York, and Massachusetts have taken steps against platforms offering such contracts, often citing violations of gambling and licensing rules.

At the federal level, lawmakers are also weighing new restrictions. Proposals under discussion include limits on sports-related event contracts and measures to bar political insiders from participating in markets tied to geopolitical or conflict-driven outcomes.