Federal Agency Sues New York Over Prediction Market Ban

The Commodity Futures Trading Commission sued New York to block the state from enforcing its gambling laws against federally registered prediction market exchanges.

The complaint filed in the Southern District of New York seeks a declaratory judgment confirming federal preemption, plus a permanent injunction barring state action against CFTC-registered designated contract markets.

Fourth State in CFTC’s Prediction Market Fight

New York joins Arizona, Connecticut, and Illinois on the agency’s docket. The CFTC sued the other three states earlier this month over parallel enforcement campaigns aimed at registered prediction market venues.

A federal judge in Arizona granted the agency a temporary restraining order halting that state’s criminal case against CFTC-regulated platforms. The CFTC has also filed an amicus brief in the Ninth Circuit Court of Appeals defending its preemption argument before appellate judges.

New York’s regulators previously hit registered platforms with cease-and-desist letters and civil suits. Chairman Michael Selig accused the state of disregarding longstanding federal precedent by treating CFTC-listed event contracts as illegal gambling products subject to state licensure rules.

Massachusetts Amicus Filed Same Day

The agency simultaneously filed an amicus brief in the Massachusetts Supreme Judicial Court in Commonwealth of Massachusetts v. KalshiEx LLC. Attorney General Andrea Campbell previously secured a preliminary injunction blocking Kalshi from offering sports event contracts to Massachusetts customers.

The brief argues the Commodity Exchange Act preempts state laws applied to CFTC-regulated markets. Selig said Congress assigned the agency sole authority over commodity derivatives, prediction markets included.

Kalshi recently prevailed at the Third Circuit Court of Appeals in a parallel New Jersey case, strengthening the federal preemption argument. Kalshi and Polymarket together face more than a dozen state and tribal challenges over sports and political event contracts.

Trading Climbs as Prediction Markets Go Mainstream

Trading activity on both platforms has climbed through early 2026, with sports event contracts emerging as the central flashpoint between state and federal authorities. Google Finance recently integrated Kalshi and Polymarket odds data, pulling prediction market pricing further into mainstream financial coverage.

Federal courts in New York and Massachusetts will now rule on whether the Exchange Act blocks state gambling claims. Their decisions, alongside the CFTC’s Ninth Circuit amicus and the Arizona restraining order, could shape national rules for a fast-growing industry that operates across every state.

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