The Commodity Futures Trading Commission (CFTC) has initiated legal proceedings against Wisconsin, intensifying its ongoing dispute with states regarding the oversight of prediction markets. This lawsuit was lodged in the U.S. District Court for the Eastern District of Wisconsin, where the CFTC seeks both declaratory and injunctive relief to prevent the state from enforcing its gambling regulations on federally regulated event contracts.
Just days prior, the CFTC had filed a similar suit against New York and has previously taken action against Arizona, Illinois, and Connecticut for their attempts to impose state laws on prediction market platforms like Kalshi.
Washington state is also under scrutiny, as it may face similar legal challenges from the CFTC.
In its ongoing litigation, the CFTC reinforces its claim that Congress has granted it “exclusive jurisdiction” over derivatives markets, including those involving event contracts traded on prediction market platforms. The agency's complaint references the Commodity Exchange Act (CEA), which designates the CFTC as the federal authority responsible for regulating commodity futures, options, and swaps on federally regulated exchanges.
Framing the issue as a Supremacy Clause conflict, the CFTC argues that Wisconsin's enforcement actions encroach upon the federal framework established by Congress to manage national swaps markets. The agency aims to prevent the state from applying and enforcing state laws that have been preempted by federal regulations.
CFTC Chair Mike Selig emphasized that states cannot bypass the clear directives set forth by Congress, stating, “Our message to Wisconsin is the same as to New York, Arizona, and others: if you interfere with the operation of federal law in regulating financial markets, we will sue you.”
Wisconsin's legal actions against prediction market platforms began on April 23, targeting operators such as Kalshi, Polymarket, Crypto.com, Robinhood, and Coinbase. The state claims these platforms are engaging in illegal gambling under state law, alleging violations of Wis. Stat. § 945.03 and causing public disturbances. State officials further contend that these companies are facilitating illegal sports betting while disguising their activities as event contracts.
The CFTC disputes this characterization, asserting that these contracts are federally regulated derivatives that do not meet the definition of “bets” under Wisconsin law.
The lawsuit in Wisconsin is part of the CFTC's broader legal strategy to assert federal authority over prediction markets. Alongside its lawsuits, the agency has supported prediction market operators in Massachusetts through an amicus brief and has obtained a temporary restraining order in Arizona to halt the state's criminal case against Kalshi.
Furthermore, the CFTC argues that state-by-state enforcement complicates its ability to regulate and enforce its authority effectively. Legal expert Daniel Wallach has pointed out a potential procedural issue, noting that the CFTC filed its case in the Eastern District of Wisconsin, while related enforcement actions by the state are pending in the Western District, where the state capital is situated. This could lead to venue disputes as the litigation unfolds.