CFTC sues Illinois over state's cease-and-desist letters against prediction markets

The U.S. Commodity Futures Trading Commission and Department of Justice filed a lawsuit against Illinois and various state officials on Thursday over the state's efforts to shutter prediction market providers.

Illinois sent cease-and-desist letters to some prediction market providers, arguing that the companies were offering sports gambling products that should be regulated under state law. The CFTC has argued that prediction markets are offering swaps products, which are regulated under the federal Commodity Exchange Act and therefore are under the "exclusive jurisdiction" of that regulator.

In the lawsuit, the CFTC continued this argument, saying Illinois's efforts "intrudes on" the CFTC's role, and that federal law preempts state regulations in this matter.

"Event contracts are derivative instruments that enable parties to trade on their predictions about whether a future event — which may relate to economics, or elections, or climate, or sports, or anything else of a potential financial, economic or commercial consequence — will occur," the filing said.

The CFTC, especially under current Chairman Mike Selig, has argued that prediction markets are federally regulated, even as many of these companies expand to allow customers to place bets on sporting events. States, under both Republicans and Democrats, have pushed back. Nevada's Gaming Control Board secured a temporary restraining order against Kalshi last month, with a hearing set for Friday.

The CFTC will participate in an appeals court hearing before the Ninth Circuit later this month, in a consolidated case involving the North American Derivatives Exchange, Kalshi and Robinhood.

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