A new coalition has formed in the prediction market industry, while Nevada has ramped up its legal actions against Kalshi. Meanwhile, the CFTC is actively pursuing its agenda against restrictions imposed by states on prediction markets.
On June 12, litigation surrounding prediction markets intensified as federal regulators, exchange operators, and state officials initiated a series of legal actions across four states. These actions included a lawsuit from the CFTC against New Mexico, a challenge from Crypto.com’s prediction market platform against New York regulators, a tax lawsuit in Kentucky initiated by the newly formed coalition, and a request from Nevada for contempt sanctions against Kalshi.
CFTC Takes Action Against New Mexico
The CFTC has filed a lawsuit against New Mexico, following the state's recent legal moves against Kalshi and a separate challenge from tribal gaming interests. The federal agency contends that Congress has granted it exclusive jurisdiction over event contracts traded on federally regulated designated contract markets, asserting that New Mexico's gambling laws cannot be applied to these transactions.
This lawsuit makes New Mexico the latest state to face a challenge from the CFTC, which has previously taken action against Illinois, Arizona, Connecticut, New York, Wisconsin, Minnesota, and Rhode Island. Additionally, the CFTC has submitted amicus briefs in cases in Massachusetts, Ohio, and Nevada.
Nevada Seeks Contempt Sanctions Against Kalshi
The Nevada Gaming Control Board has requested a state court to hold Kalshi in contempt, arguing that the company has not adhered to a preliminary injunction issued on May 18. This injunction required Kalshi to cease offering contracts related to sports, elections, and entertainment events to individuals in Nevada.
According to court documents, investigators purchased covered event contracts on several occasions between May 28 and June 1 while located in Nevada. These contracts included bets on NBA playoff games, MLB games, tennis matches, and other events.
Nevada claims that Kalshi's geofencing measures are insufficient and has asked the court to impose sanctions, which could include the return of profits from Nevada transactions or daily fines until compliance is achieved. The Board stated in a press release that Kalshi has failed to comply with the court's order and reiterated that contracts for sports events are considered wagering under Nevada law.
Crypto.com Files Suit Against New York
Crypto.com’s North American Derivatives Exchange (Nadex) has initiated legal action against New York Attorney General Letitia James and the New York State Gaming Commission. The complaint seeks both declaratory and injunctive relief, arguing that federal law supersedes New York's gambling laws in relation to event contracts traded on federally regulated exchanges.
Nadex points to ongoing litigation against Gemini and Coinbase in New York as evidence that enforcement actions against its platform are imminent. The filing emphasizes that the CFTC holds exclusive authority over federally regulated designated contract markets and argues that New York cannot enforce its gambling laws on these products.
New Coalition Challenges Kentucky's Tax
A newly established prediction market trade association, the Coalition for Fair Markets, has filed a lawsuit in Kentucky challenging the state’s recently implemented tax on prediction market transactions and related restrictions on gaming operators. This coalition includes Kalshi, Nadex, and Polymarket US, although Polymarket is not part of the separate Coalition for Prediction Markets.
The lawsuit contests Kentucky's 14.25% tax on prediction market transaction fees, highlighting the disparity with the state’s lower 9.75% tax on horse racing wagers. The coalition argues that Kentucky's regulations are preempted by federal law and violate several constitutional protections, including the dormant Commerce Clause and equal protection guarantees.