CFTC sues Utah over state action against Kalshi prediction markets

On Tuesday, the Commodity Futures Trading Commission brought a case against Utah, targeting the state's effort to limit Kalshi, a prediction market platform. The complaint was lodged by the CFTC in the US District Court for the District of Utah, Central Division, with the state and Attorney General Derek Brown listed as defendants. In the agency's view, Utah is encroaching on federal authority over prediction markets, and state law cannot be used against Kalshi since federal oversight of the company is exclusive.

Utah had gone to court against Kalshi one week earlier, and the federal suit comes after that filing. In the state's account, the company runs an unlawful gambling operation, and the platform is described as a “public nuisance that is causing substantial ongoing harm” to residents. Utah contends that Kalshi breaks state gambling statutes, among them rules covering wagers on sports, elections and politics.

That accusation is disputed by Kalshi. Jacki McGavick, a company spokesperson, said in a statement that because Kalshi is a financial exchange regulated at the federal level, it “answers to federal law, and no single state should have a veto over it.”

CFTC Chair Michael Selig said in a statement that “Utah seeks to shut down prediction markets across a wide variety of markets.” According to him, Congress gave the CFTC sole responsibility as the federal regulator overseeing these markets, and the agency possesses both the expertise and the duty to protect its exclusive jurisdiction over commodity derivatives.

This marks the federal regulator's tenth case against a state that has tried to curb prediction markets, and the first one involving a state with a Republican governor. Earlier suits were brought by the CFTC against Arizona, Connecticut, Illinois, New York, Wisconsin, Minnesota, Rhode Island, New Mexico and Kentucky, which the agency accuses of interfering with its “exclusive jurisdiction.”

Selig, serving under the Trump administration, has advanced the agency's oversight claim by means of litigation as well as rulemaking. The agency's position is that operators of prediction markets are financial exchanges regulated federally and therefore supervised only by it. For their part, state officials view the platforms as a newer kind of gambling that states should oversee. States further contend that sports betting falls within their jurisdiction and that the platforms operate unlawfully while sidestepping taxes.

Utah Gov. Spencer Cox (R) said earlier this year that the notion of CFTC regulation of the platforms was “a joke.” The question of whether federal or state authorities should oversee prediction markets has passed through state courts and may end up at the US Supreme Court, where a request from New Jersey officials to take up the matter is under consideration.