CFTC Sues Rhode Island to Block Prediction Market Lawsuits

• The Commodity Futures Trading Commission is embroiled in a new legal fight to maintain its exclusivity over prediction markets
• The commission has sued Rhode Island to halt the state’s efforts to apply state gambling laws against prediction market operators
• Rhode Island Attorney General Peter F. Neronha this week filed lawsuits against Kalshi and Polymarket alleging illegal sports betting

The Commodity Futures Trading Commission is not sitting on the sideline when it comes to state battles against the prediction markets.

The commission filed a lawsuit in the U.S. District Court for the District of Rhode Island to halt the state’s lawsuit against two prediction market operators. Rhode Island Attorney General Peter F. Neronha last week filed lawsuits in Rhode Island Superior Court against both Kalshi and Polymarket, alleging the operators offering sports event contracts is tantamount to illegal sports betting in the state.

The Commodity Futures Trading Commission’s (CFTC) lawsuit attempts to reaffirm its regulatory exclusivity over prediction markets in the U.S.

Clear and Exclusive Jurisdiciton

CFTC Chairman Michael S. Selig decried Neronha’s decision to file lawsuits against Polymarket and Kalshi. The CFTC has longstanding exclusive jurisdiction over CFTC-registered prediction markets, he said.

“CFTC-registered exchanges have faced an onslaught of lawsuits seeking to limit Americans’ access to event contracts and undermine the CFTC’s sole regulatory jurisdiction over prediction markets. This power grab ignores the law and decades of precedent,” Selig said in a press release. “Event contracts allow businesses and individuals to hedge event-driven risks, enable investors to manage portfolio exposure, and provide the public with information about the outcome of future events. These products are commodity derivatives and squarely within the CFTC’s regulatory remit. As I’ve said before, the CFTC has the expertise and responsibility to defend its exclusive jurisdiction over commodity derivatives, and that’s exactly what we’ll do.”

The lawsuit requests a motion to intervene by the United States and the CFTC in support of both Kalshi and Polymarket. The Rhode Island lawsuit, counsel for Kalshi notes, attempts to usurp the CFTC’s jurisdiction over prediction markets and enforce state gaming laws against federally regulated exchanges.

If Rhode Island is allowed to enforce its state gaming laws against prediction market operators, it would effectively “cripple the CFTC’s ability to approve such exchanges and financial products for listing in the state of Rhode Island and, more broadly, would undermine the CFTC’s mandate to ‘promote responsible and fair competition’ in American derivatives markets.”

Complicated Battle in Rhode Island

This is the fourth lawsuit to be filed in the smallest state in the country regarding prediction markets. In addition to Neronha’s two lawsuits against Polymarket and Kalshi and the CFTC’s lawsuit against the state, Kalshi also filed its own lawsuit in response against Neronha and Christina Tobiasz, gaming and athletics administrator for the Rhode Island Department of Business Regulation.

Neronha’s lawsuits request the Rhode Island Superior Court declare Kalshi and Polymarket’s sports-related event contracts amount to sports betting and are therefore subjected to Rhode Island state gambling laws.

“There is no substantive difference between sports betting and ‘events contracts’ in this context; Kalshi and Polymarket know that, and we know that. The problem here is that Rhode Island State law heavily regulates gambling, for good reason, and we allege that Kalshi and Polymarket are evading our laws. And Rhode Islanders are losing out. While these private companies continue to profit exponentially off hard-working people, the State’s third largest revenue stream is detrimentally affected, which means less money to fund critical parts of programs that serve Rhode Islanders every day,” Neronha said.

On the same day Neronha filed his lawsuits, Kalshi filed a lawsuit in response against the attorney general. Filed in U.S. District Court District of Rhode Island, the lawsuit claims the Commodity Exchange Act (CEA) preempts state law and the Commodity Futures Trading Commission (CFTC) is the only regulatory body that has the power to regulate prediction markets in the U.S.

“An enforcement action by Rhode Island designed to prohibit Kalshi from offering contracts that federal law permits would intrude on the comprehensive federal scheme for regulating designated exchanges. Kalshi is a federally designated and approved derivatives exchange, subject to the CFTC’s exclusive jurisdiction. Kalshi offers consumers the chance to trade many types of event contracts, all of which are subject to extensive oversight by the CFTC and are lawful under federal law. The CFTC has the authority to initiate the review of, and under certain circumstances, prohibit the trading of, contracts listed on Kalshi’s federally regulated exchange,” Kalshi counsel wrote in the lawsuit.

Kalshi’s lawsuit against Rhode Island – and all of its lawsuits against state regulators and attorneys general – revolves around the central question of who regulates sports event contracts, and prediction markets, in general.