The Commodity Futures Trading Commission filed lawsuits against Arizona, Connecticut, and Illinois on Thursday, marking the first time the federal agency has taken direct legal action to block state gaming regulators from policing prediction market operators. The move challenges state efforts to regulate platforms including Kalshi, Polymarket, Crypto.com, and Robinhood.
The Core Dispute
States say these platforms are running unlicensed gambling operations. The CFTC says they're federally regulated financial exchanges and states need to back off. CFTC Chairman Michael Selig argued that "Congress specifically rejected a fragmented patchwork of state regulations" because it resulted in poorer consumer protection.
Connecticut Attorney General William Tong fired back, accusing the Trump administration of "recycling industry arguments that have been rejected in district courts." Illinois called it "a blatant attempt to sidestep state jurisdiction" by firms "making record profits while exposing residents to gaming products with no basic consumer protections."
Arizona's Criminal Case Changes the Stakes
Arizona Attorney General Kris Mayes has taken the most aggressive approach, filing 20 criminal counts against Kalshi on March 17 — the first state criminal prosecution against a prediction market operator. The charges allege illegal acceptance of bets on professional and college sports, plus elections including the 2028 presidential race.
"Kalshi may brand itself as a prediction market, but what it's doing is running an illegal gambling operation," Mayes stated.
The Numbers Tell the Story
At least 20 federal lawsuits nationwide are now disputing whether these platforms are financial exchanges or gambling operations. Thirty-nine state attorneys general sided with Nevada against Kalshi in one case. Seven states have announced regulatory investigations.
State officials argue these platforms lack age verification, geolocation controls, self-exclusion measures, and responsible gaming resources — protections that licensed sportsbooks are required to maintain. Recent scrutiny deepened after reports of possible insider trading on Kalshi and Polymarket tied to U.S. military strikes on Iran.
Legal scholars suggest this fight could reach the Supreme Court. For now, the prediction market industry sits in regulatory limbo — legal under federal oversight, potentially criminal under state law, depending on where you live.
