Federal government sues three states over their regulation of prediction markets

The federal government on Thursday sued Connecticut, Arizona and Illinois, challenging their efforts to regulate prediction market operators such as Kalshi and Polymarket.

All three states have sent cease and desist orders to such companies accusing them of engaging in illegal online gambling under state law. Arizona also filed criminal charges last month against Kalshi for allegedly violating state gambling laws and a law that makes betting on elections illegal.

The Commodity Futures Trading Commission contends in court filings that it, not the states, regulates these companies.

“The CFTC will continue to safeguard its exclusive regulatory authority over these markets and defend market participants against overzealous state regulators,” CFTC Chairman Michael S. Selig said in a written statement. He said Congress “rejected such a fragmented patchwork of state regulations” because it led to increased risk of fraud and poor consumer protection.

Last month, the Trump administration threw its support behind the operators Kalshi and Polymarket in a critical legal battle that could have implications for how sports betting is regulated.

Connecticut Attorney General William Tong on Thursday accused the Trump administration of “recycling industry arguments” that have been rejected in district courts across the country.

“These contracts are plainly unlicensed illegal gambling under time-worn state law, and we will aggressively defend Connecticut’s commonsense consumer protection laws,” he said.