An already heated dispute about who has the power to regulate prediction market platforms has escalated with the Commodity Futures Trading Commission (CFTC) suing New York in an effort to prevent the state from imposing its gambling laws on these platforms.
The Commodity Futures Trading Commission (CFTC) filed a complaint in the US District Court for the Southern District of New York, claiming that it has exclusive jurisdiction over these markets under federal law. The CFTC asked the court to declare its authority and issue a permanent injunction prohibiting New York from taking enforcement actions.
Tussle Over Authority
The goal of the several state lawsuits against CFTC-registered exchanges is to restrict the ability of Americans to participate in event contracts and to weaken the authority of the CFTC to regulate prediction markets, according to CFTC Chair Michael Selig.
Claiming that Coinbase and Gemini’s offers violated state gambling statutes, New York filed lawsuits against them earlier this week. Kalshi was also a prior target of the state, which had already ordered the company to suspend some sports-related contracts.
In an amicus brief filed on Friday, a group of 37 states plus Washington, D.C. backed Massachusetts’ lawsuit against Kalshi, asking the state’s highest court to dismiss Kalshi’s claim that it may provide sports betting throughout the country without complying with state regulations.
Based on a financial regulation passed in 2010, Kalshi claims its betting products are “swaps” that are controlled by a government body. The states argue that the purpose of the statute was never to regulate sports betting or legalize it, and that it does not expressly supersede the power of the states, which have traditionally controlled gambling.
Furthermore, the states contend that safeguards would be diminished in the absence of official supervision. While the federal government does not regulate financial matters such as gambling addiction, age limitations, fraud prevention, or licensing, state laws do manage these issues.