Kalshi and CFTC Sue Over State-Level Prediction Market Bans
Ted Hisokawa May 28, 2026 22:13
Kalshi and the CFTC file lawsuits against Minnesota and Rhode Island, escalating the battle over state bans on prediction markets.
The battle over the regulation of prediction markets has intensified, with federal regulators and private platforms mounting legal challenges against state-level bans. On May 28, 2026, Kalshi, a federally regulated prediction market platform, filed a lawsuit against Minnesota, alleging that the state’s new ban on such platforms violates federal law. This follows a lawsuit filed by the U.S. Commodity Futures Trading Commission (CFTC) against Minnesota just days earlier.
Minnesota Governor Tim Walz signed Senate File 4760 into law on May 19, making the state the first in the nation to impose a comprehensive ban on prediction market platforms. The law, set to take effect in August, prohibits advertising, operating, or facilitating such platforms within the state. The CFTC responded swiftly on May 20, filing a federal lawsuit claiming the state law infringes on its exclusive jurisdiction under the Commodity Exchange Act and the Supremacy Clause of the U.S. Constitution. Kalshi’s lawsuit mirrors these arguments, asserting that federally regulated event contracts should not be classified as gambling under state law.
On the same day as Kalshi’s filing, the CFTC also announced a joint legal action with Kalshi against Rhode Island officials. This case stems from Rhode Island Attorney General Peter Neronha’s earlier lawsuits against Kalshi and Polymarket, alleging their event contracts on sports outcomes constituted illegal betting. The CFTC contends that these contracts are financial derivatives under its purview, not gambling instruments subject to state control.
Federal vs. State Jurisdiction
The core issue in these cases is whether prediction markets should be regulated as financial derivatives by the CFTC or as gambling by state authorities. Kalshi and the CFTC argue that event contracts traded on federally designated platforms fall squarely under federal jurisdiction. However, states like Minnesota and Rhode Island claim the contracts can also be classified as gambling activities, subject to state laws.
Legal experts suggest the stakes are high. "These cases could set precedents determining if prediction markets will remain exclusively under federal oversight or face a patchwork of state-level gambling restrictions," said a regulatory analyst. Previous legal challenges, such as a 2024 federal appellate court ruling, have upheld federal jurisdiction over certain event contracts, but state-level resistance has only grown since then.
Trump Administration’s Involvement
Adding a political layer to the legal battles, U.S. President Donald Trump voiced his support for the CFTC’s authority over prediction markets via social media on May 27, calling it “critically important” to maintain federal oversight. Notably, Trump’s son, Donald Trump Jr., is an advisor to both Kalshi and Polymarket and has invested in Polymarket through his venture capital firm, 1789 Capital. This connection has drawn scrutiny amid ongoing Congressional inquiries into potential insider trading on prediction market platforms.
Potential Supreme Court Showdown
With lawsuits filed across multiple states, including Arizona and Washington earlier this year, the prediction market debate is inching closer to the U.S. Supreme Court. Some legal observers believe the high court may eventually need to resolve the jurisdictional dispute, particularly if federal appellate courts issue conflicting rulings.
For now, Kalshi and the CFTC are doubling down on their stance, aiming to secure a unified regulatory framework. As Governor Walz’s law is set to take effect in August, traders and industry stakeholders will be closely monitoring the legal proceedings for signs of how this battle might unfold—and what it could mean for the future of prediction markets in the U.S.
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