The federal government has challenged the authority of three states to regulate prediction markets, filing a lawsuit against Connecticut, Arizona and Illinois that targets state action against operators including Kalshi and Polymarket.
According to the Associated Press, all three states had issued cease-and-desist orders to the companies, arguing the platforms were engaging in illegal online gambling under state law. Arizona also moved further than the other two states, filing criminal charges last month against Kalshi that prosecutors said involve violations of state gambling laws and a state law that makes betting on elections illegal.
Federal regulators, however, said the states are overstepping into a domain the federal government says it controls. The Commodity Futures Trading Commission argued in court filings that it—not the states—regulates these prediction market companies.
In a written statement, CFTC Chairman Michael S. Selig said, “The CFTC will continue to safeguard its exclusive regulatory authority over these markets and defend market participants against overzealous state regulators.” He added that Congress “rejected such a fragmented patchwork of state regulations” because, in his view, state-by-state approaches increase the risk of fraud and lead to poor consumer protection.
The legal dispute comes after the Trump administration sided with the operators Kalshi and Polymarket in a key earlier legal battle that could affect how sports betting is regulated in the future. In the new lawsuit, Connecticut Attorney General William Tong criticized the federal position, saying it was simply reasserting arguments that have been rejected by district courts.
Tong, according to the Associated Press, accused the Trump administration of “recycling industry arguments” that have been rejected in district courts across the country. He said, “These contracts are plainly unlicensed illegal gambling under time-worn state law, and we will aggressively defend Connecticut’s commonsense consumer protection laws,” framing the states’ actions as consumer protection enforcement rather than federal-regulatory interference.
The outcome of the case will likely turn on the extent to which Congress and federal agencies give the CFTC exclusive authority over prediction market operators—versus the degree to which states can apply their own gambling laws and enforcement mechanisms to those same platforms.