The Commodity Futures Trading Commission (CFTC), joined by the U.S. Department of Justice in separate actions, has sued Illinois, Connecticut and Arizona and their gaming regulators, asserting federal authority to regulate prediction markets. The filings challenge state attempts to treat certain event contracts as gambling and seek to preserve federal oversight under the Commodity Exchange Act (CEA).
In 2025 those states issued cease-and-desist letters to prediction platforms including Kalshi and Polymarket, saying the platforms’ event contracts violated state gambling statutes and licensing rules. The CFTC’s complaint against Illinois specifically names Governor J.B. Pritzker, Attorney General Kwame Raoul and the Illinois Gaming Board, alleging the board exceeded its authority by labeling event contracts as “wagers” or “sports betting” rather than recognizing them as regulated asset swaps.
Across the suits the CFTC argues it has exclusive jurisdiction over Designated Contract Markets (DCMs) under the CEA, and that state efforts to shut down or restrict federally registered DCMs improperly intrude on the federal regulatory framework Congress created for national swaps markets. The Illinois filing warns that unless the court blocks state actions, the defendants are likely to continue measures that undermine federal law and the CFTC’s exclusive oversight of event-contract swaps.
CFTC Chairman Mike Selig criticized the state actions as overreach that has sown market uncertainty and could destabilize participants and registrants. The litigation is unfolding against a backdrop of growing enforcement and legislative pressure targeting prediction markets: state regulators in Arizona, Nevada, Illinois, Maryland, New Jersey, Montana, Ohio, Connecticut, Tennessee, New York and Massachusetts have taken actions against platforms, and lawmakers are proposing bans on sports-related event contracts and limits that would bar political insiders from participating in markets tied to war.
Regulators and legislators cite concerns including insider trading, market manipulation and other risks unique to markets that trade on political or real-world events. The new lawsuits frame the dispute as a federal-state jurisdictional fight over who governs these markets and whether state prohibitions can stand where the CFTC asserts exclusive regulatory authority.