The U.S. government has sued Arizona, Connecticut, and Illinois on Thursday, opening a new front in the fight over prediction markets.
The Commodity Futures Trading Commission (CFTC) said the three states went too far by trying to police event contracts that fall under federal law.
At the same time, the lawsuits place the dispute in federal court at a time when pressure on prediction market platforms is rising from several sides. State regulators, lawmakers, and sports groups have all taken a closer look at contracts tied to elections, sports, and other public events.
Federal government says states crossed legal lines
The CFTC filed separate lawsuits against the three states and asked the courts to stop them from enforcing gambling laws against federally regulated event contracts. The agency noted that Congress gave it sole authority over these products through the Commodity Exchange Act.
According to the complaints, state action against companies such as Kalshi, Polymarket, Crypto.com, and Robinhood interferes with a federal regulatory system already in place. The agency argued that the states cannot block or restrain activity that federal law permits.
CFTC Chairman Michael Selig said the regulator would continue to protect its “exclusive regulatory authority” over these products. He also said the agency would defend firms from “overzealous state regulators,” making clear that the lawsuits focus on control over the market.
The federal government also asked the courts to declare that state gambling laws are invalid when applied to these contracts. That request gives the cases a wider legal reach and turns them into a direct test of federal power over prediction platforms.
Arizona, Connecticut, and Illinois cite gambling concerns
The three states have each moved against prediction market operators in recent months. Their regulators argued that some contracts look like sports betting and may allow firms to offer wagering without state approval.
State officials also raised concerns about age limits and consumer safeguards. Some regulators said these platforms may let users take part in activity that resembles gambling, even though the companies describe the products as federally supervised contracts.
Connecticut Attorney General William Tong rejected the federal government’s position and said the administration was “recycling industry arguments that have been rejected in district courts across the country.” He said the state would defend its consumer protection laws in court.
Illinois indicated that it was reviewing the lawsuit. Arizona had already taken a more aggressive step before the federal filing by bringing criminal charges against Kalshi on March 17 and accusing the company of allowing illegal gambling and election betting.
Kalshi and rivals remain central to the dispute
Kalshi remains the main company at the center of the legal clash. The platform has said it operates as a regulated exchange and should not face a patchwork of different state rules.
That argument now sits at the heart of the new cases. The CFTC said states cannot shut down firms offering contracts under federal oversight, while state regulators argue that some products still fall within local gaming laws.
Polymarket, Crypto.com, and Robinhood also appeared in the federal government’s account of the dispute. The agency objected to cease-and-desist letters sent to designated contract markets and firms linked to those products.
The CFTC said Congress rejected a state-by-state system because it could weaken consumer protection and raise the risk of fraud and manipulation. The agency’s position is that one federal standard should govern these contracts across the country.
Washington pressure on prediction markets keeps growing
The lawsuits arrive as prediction markets face more scrutiny in Washington. Members of Congress have started pushing for tighter limits on contracts that resemble sports bets or casino-style games.
In March, U.S. senators introduced a bill that would block prediction markets from offering certain sports-related and gaming-style contracts. House Democrats also backed efforts to ban contracts tied to elections, war, and sports.
Outside Congress, sports leagues have also entered the debate. As Coin Headlines reported, the NFL’s chief compliance officer asked prediction market operators to block contracts the league viewed as objectionable and pointed to the need for stricter treatment of sports-linked products.
The new lawsuits show that the fight is no longer limited to platform operators and state gaming boards. The federal government has now stepped in directly, arguing that Arizona, Connecticut, and Illinois cannot regulate activity that Congress placed under CFTC control.