CFTC Files Lawsuit Against New York Over State Crackdown on Prediction Markets

(AsiaGameHub) –   The Commodity Futures Trading Commission (CFTC) has initiated legal proceedings in New York to stop the state’s measures against licensed prediction market platforms.

In a press release, the agency stated, “New York has attempted to apply state laws to CFTC-registered entities using cease-and-desist letters and civil enforcement lawsuits.”

The CFTC is pursuing an injunction to bar the state from further enforcement actions against the registered firms.

CFTC Responds to NY AG Lawsuits

This move comes after New York Attorney General Letitia James sued Coinbase and Gemini, two operators licensed by the CFTC, last week.

James alleges these platforms break state laws by providing illegal gambling services. The CFTC counters that it holds exclusive oversight of the industry and, as a federal body, possesses superior authority compared to state regulators.

CFTC Chairman Michael Selig said, “CFTC-registered exchanges have been hit with a wave of state lawsuits aiming to restrict Americans’ access to event contracts and challenge the CFTC’s exclusive regulatory jurisdiction over prediction markets.”

Separately, Wisconsin lodged a complaint last week against Kalshi, Polymarket, Crypto.com, Robinhood, and Coinbase.

Legal disputes between regulators and prediction markets are now active in 16 states.

CFTC Vows to Defend Companies

“New York is the latest state to disregard federal law and longstanding precedent by trying to enforce state gambling laws against CFTC-registered exchanges,” Selig continued. “As I’ve stated previously, the CFTC will not permit overzealous state governments to erode the agency’s established authority over these markets.”

Earlier this month, the CFTC sued gambling regulators in Arizona, Connecticut, and Illinois over their actions targeting prediction markets.

A judge issued a preliminary ruling supporting the CFTC and prevented Arizona from pursuing criminal charges against Kalshi.

Insider Trading Scandals Put Pressure on CFTC

Most state complaints focus on CFTC-licensed firms offering sports-related markets. States argue these markets constitute sports betting and should be regulated accordingly.

Further pressure on the CFTC has arisen from several insider trading incidents involving its licensees.

Last week, U.S. soldier Gannon Ken Van Dyke was arrested for betting on the capture of Nicolas Maduro on Polymarket. Van Dyke, who was part of the operation, used his insider information to win more than $400,000 on related markets.

Betting on war-related markets is formally banned by the Commodity Exchange Act (CEA). These markets were on Polymarket’s international site, which is not supposed to be accessible to U.S. residents.

Nevertheless, because Polymarket is now CFTC-regulated in the U.S., legislators are calling for the agency to act more forcefully against the platform.

Regulators are Supposed to Regulate

In his newsletter last week, prediction market analyst Steve Ruddock highlighted a contrast between gambling regulators and the CFTC. Ruddock wrote, “State gambling regulators enforce accountability on the industry, whereas the Commodity Futures Trading Commission allows the industry to self-regulate.”

He illustrated this with a hypothetical scenario of an athlete caught betting on their own games at a regulated sportsbook.

The operator would “need to provide an explanation, present a concrete prevention plan, and face a fine or penalty that escalates with each violation, depending on the operator’s negligence and the severity of the breach.”

In Van Dyke’s case, however, the CFTC has complained about the soldier but seems to be taking no steps against Polymarket, even as it continues to advertise banned war markets to users.

Attorney Stephen Piepgrass told CasinoBeats, “I believe the CFTC will seek chances to use its enforcement power by acting quickly and firmly against activities that seem to breach CFTC rules, like insider trading.”

“Should the CFTC prove it is vigilantly and competently monitoring these markets, it weakens the states’ argument that they are the most suitable regulators.”

Under the present administration, though, the agency seems very hesitant to enforce rules against licensed companies. The New York lawsuit indicates it is prepared to legally protect these platforms from challenges instead.