Key Takeaways

  • Federal lawsuits target Illinois, Connecticut, and Arizona following state enforcement actions against prediction market operators.
  • State regulators issued cease-and-desist orders to platforms such as Kalshi and Polymarket, classifying them as unlicensed gambling services.
  • Federal agencies claim exclusive regulatory authority over prediction markets through the Commodity Exchange Act.
  • A total of 11 states have initiated enforcement proceedings against prediction market operators.
  • CFTC Chairman Mike Selig expressed concern that state interventions could create instability for market participants and registered entities.

Federal agencies took legal action against Illinois, Connecticut, and Arizona this week following state attempts to halt operations of prediction market platforms such as Kalshi and Polymarket. The regulatory dispute centers on whether these platforms fall under federal oversight or state gambling regulations.

The Commodity Futures Trading Commission, joined by the US Department of Justice, initiated the legal proceedings on Thursday, April 2, 2026.

State enforcement actions began when officials in these three jurisdictions delivered cease-and-desist orders to prediction market operators in 2025. These communications asserted that the companies were providing sports betting services requiring state-level gambling licenses.

Federal regulators take a different view. They maintain that prediction markets facilitate event contracts, which qualify as derivative swaps. The Commodity Exchange Act places these instruments squarely within federal regulatory territory.

“Event contracts are derivative instruments that enable parties to trade on their predictions about whether a future event will occur,” according to the Illinois court filing.

The federal complaint against Illinois names Governor JB Pritzker, Attorney General Kwame Raoul, and the Illinois Gaming Board as defendants. State gaming authorities had categorized event contracts as “wagers” or “sports betting,” a classification federal regulators contest.

Illinois officials responded forcefully. A representative for Governor Pritzker stated the Trump administration was “carrying water for companies driving well-documented and lucrative insider trading schemes.”

Competing Regulatory Claims

State authorities further criticized the platforms for generating “record profits” while offering services lacking “basic consumer protections.” Illinois officials pledged to continue defending state residents.

CFTC Chairman Mike Selig characterized the state actions as excessive. “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,” he stated.

Selig emphasized that Congress had previously dismissed the concept of individual state regulations for these markets, describing such an approach as a “fragmented patchwork” that undermines consumer protection and increases fraud vulnerability.

The current cases represent part of a broader pattern. Eleven states altogether — including Nevada, New Jersey, New York, Maryland, and several others — have pursued enforcement measures against prediction market operators.

Nevada’s Gaming Control Board recently obtained a temporary restraining order against Kalshi, with judicial proceedings scheduled for Friday.

Future Developments

Legislative activity continues on Capitol Hill. Members of Congress are advancing proposals to prohibit sports-related event contracts completely and prevent political insiders from participating in prediction markets connected to military engagements.

The CFTC faces an upcoming appearance before the Ninth Circuit Court of Appeals later this month. That consolidated proceeding involves Kalshi, Robinhood, and the North American Derivatives Exchange.

Federal regulators point to 1992 as the year the CFTC first formally acknowledged event contracts, maintaining continuous regulatory oversight since that time.