CFTC sues states over prediction market regulation
Commodity Futures Trading Commission headquarters in Washington, DC, USA on Friday, December 23, 2022.
Ting Shen | Bloomberg | Getty Images
A federal panel on Thursday announced lawsuits against three states over their ability to privately regulate prediction markets.
Commodity Futures Trading Commission He said Arizona, Connecticut and Illinois were taken to court over what he described as states’ actions “against” contract markets registered with the organization.
The CFTC has “exclusive” authority to oversee event contracts through the Commodity Exchange Act, the commission said in a statement. However, the organization said it has found that several states have attempted to ban or impede the activities of contract markets operating in accordance with the law.
The organization said Congress gave the CFTC the authority to regulate these markets, rather than individual states.
“This is not the first time states have sought to impose inconsistent and contrary obligations on market participants,” CFTC Chairman Michael S. Selig said in a statement. he said. “But Congress specifically rejected such a fragmented structure of state regulations because it resulted in weakened consumer protections and increased risk of fraud and manipulation.”
The CFTC’s cases come at a time of increased scrutiny of prediction markets on Capitol Hill and elsewhere, where platforms like Kalshi and Polymarket are soaring in popularity.
Last week, a group of Congressional Democrats introduced legislation that would ban prediction market betting on topics like elections, war and sports. Rep. Seth Moulton, D-Mass., said he would ban the use of the prediction market by staff, a policy believed to be the first of its kind in Congress.
Sabrina Perel, the NFL’s chief compliance officer, asked prediction market operators to block event contracts deemed “objectionable” in a letter obtained by CNBC. Perel stated that the CFTC believes sports-related contracts should have unique regulation.
The CFTC did not immediately respond to CNBC’s request for comment on whether it plans to file lawsuits against other states.
Disclosure: CNBC and Kalshi have a business relationship that includes a minority investment in CNBC.
