Polymarket has initiated a lawsuit against the state of Minnesota in federal court, marking its position as the third entity to contest the state's prohibition on prediction markets. This legal action follows similar lawsuits filed by the Commodity Futures Trading Commission (CFTC) and Kalshi.
The prediction market operator contends that the state law is overridden by federal regulations and infringes upon First Amendment rights.
Earlier in May, the CFTC took action against Minnesota regarding SF 4760, a proposed ban on prediction markets. Shortly after, Kalshi filed its own lawsuit in response to the enactment of SF 3432, the new legislation that succeeded the earlier proposal.
Polymarket asserts that the CFTC has been granted exclusive jurisdiction by Congress to oversee event contracts traded on federally regulated designated contract markets, as stipulated in the Commodity Exchange Act (CEA).
The exchange warns that the new law could subject federally regulated prediction market operators to criminal charges starting August 1.
In its complaint, Polymarket highlights that SF 3432 is unprecedented in the United States, criminalizing federally regulated event-contract markets.
Polymarket’s arguments closely follow those previously made by Kalshi and the CFTC, citing recent judicial victories achieved by Kalshi, including a Third Circuit ruling against New Jersey officials and a federal court decision in Arizona that indicated federal law likely supersedes state gambling regulations against Kalshi's sports event contracts.
However, Polymarket places a stronger focus on First Amendment concerns compared to its counterparts. The company argues that SF 3432 unlawfully criminalizes the advertising and marketing of prediction markets and challenges provisions that restrict the sharing of data and verification services with prediction market operators.
The complaint states that these limitations obstruct Polymarket's ability to communicate with clients and gather essential information for operating federally regulated markets.
Additionally, Polymarket emphasizes the economic and informational significance of prediction markets, arguing that event contracts assist businesses in managing risks while providing real-time probability forecasts for upcoming events.
In May, Minnesota passed SF 3432 as part of a broader public safety initiative. This law, effective August 1, introduces new criminal restrictions aimed at prediction markets.
The legislation bans the operation, facilitation, servicing, or advertising of prediction markets across a wide array of topics, including sports, elections, wars, legal matters, events involving public figures, and cultural outcomes.
The law also applies to entities that support prediction markets, such as payment processors, geolocation services, identity verification providers, advertisers, and certain data service providers.
Violations of this law could lead to felony charges.
With SF 4760 and subsequently SF 3432, Minnesota has become the first state to implement legislation that directly prohibits prediction markets, rather than relying solely on existing gambling regulations.
This ongoing legal dispute places Minnesota at the forefront of a national debate regarding the authority of states to impose restrictions on event contracts listed on CFTC-regulated exchanges.