Friday, December 23, 2022, at the Commodity Futures Trading Commission headquarters in Washington, DC.
Ting Sheng | Bloomberg | Getty Images
A federal commission on Thursday announced a lawsuit against three states over their exclusive authority to regulate prediction markets.
The Commodity Futures Trading Commission announced that it will sue Arizona, Connecticut, and Illinois over the states’ actions against contract markets registered with the commission.
The commission said in a release that the CFTC has “exclusive” authority to oversee event contracts through the Commodity Exchange Act. However, the group said it has found that various states are attempting to outlaw or disrupt designated contract market activities that operate in accordance with the law.
The agency said Congress gave the CFTC, rather than individual states, the sole authority to regulate these markets.
“This is not the first time a state has attempted to impose contradictory and contradictory obligations on market participants,” CFTC Chairman Michael S. Selig said in a statement. “But Congress specifically rejected this piecemeal patchwork of state regulations on the grounds that it would provide insufficient consumer protection and increase the risk of fraud and manipulation.”
The CFTC lawsuit comes amid increased scrutiny of prediction markets like Capitol Hill as platforms like Kalshi and Polymarket soar in popularity.
A group of Congressional Democrats introduced a bill last week that would ban betting on prediction markets on topics such as elections, war and sports. Representative Seth Moulton, D-Massachusetts, said he would ban his staff from using prediction markets, a move believed to be a first in Congress.
In a letter obtained by CNBC, Sabrina Perel, the NFL’s chief compliance officer, urged prediction market operators to block event contracts deemed “objectionable.” Perel noted that the CFTC believes sports-related contracts should have their own regulations.
The CFTC did not immediately respond to CNBC’s request for comment on whether lawsuits against other states are planned.
Disclosure: CNBC and Kalsi have a commercial relationship that includes a minority investment in CNBC.
