CFTC sues Rhode Island over actions against prediction markets

• Rhode Island's Democratic attorney general sued Kalshi and Polymarket, claiming they violated state sports-betting laws, while the CFTC argues regulation of event contracts falls under federal jurisdiction over swaps and derivatives
• A total of 18 states are now engaged in litigation over prediction markets, though the CFTC has only sued states with Democratic attorneys general despite bipartisan involvement
• President Trump stated Tuesday that maintaining the CFTC's exclusive jurisdiction over prediction market regulation is critical

CFTC Sues Rhode Island Over Prediction Markets Dispute

The Commodity Futures Trading Commission (CFTC) filed a lawsuit against Rhode Island on Thursday, marking the seventh state targeted by the federal agency in an escalating dispute over prediction market regulation.

Key Developments

Rhode Island Attorney General Peter Neronha sued prediction market platforms Kalshi and Polymarket last week, alleging violations of state sports-betting laws through their sports-related event contracts. The CFTC counters that regulatory authority over these markets falls exclusively under its federal jurisdiction over swaps, derivatives, and event contracts.

Regulatory Conflict

CFTC Chairman Michael Selig characterized state actions as "a power grab" that "ignores the law and decades of precedent," stating that "CFTC-registered exchanges have faced an onslaught of lawsuits seeking to limit Americans' access to event contracts."

Currently, 18 states are engaged in litigation over prediction markets, with one state (Minnesota) having already moved forward with proceedings. President Donald Trump voiced support Tuesday for maintaining the CFTC's exclusive regulatory jurisdiction over prediction markets.

Political Dimension

A notable pattern has emerged: while state authorities involved in legal proceedings include both Republicans and Democrats, the CFTC has exclusively sued states with Democratic attorneys general, including Rhode Island's Neronha. No Republican attorney general has faced CFTC legal action over prediction markets.

Market Implications

The intensifying federal-state conflict creates regulatory uncertainty for prediction market platforms like Kalshi and Polymarket, potentially affecting their operations and growth. The outcome could establish crucial precedent determining whether prediction markets fall under federal derivatives regulation or state gambling laws.

*Note: CNBC has a commercial relationship with Kalshi including customer acquisition and minority investment.*