CFTC Files Suit Against Rhode Island in Prediction Market Battle

CFTC is aggressively supporting prediction market sites

In recent weeks, the CFTC has been quite a litigious regulator. The prediction market regulator is becoming aggressive in defending the rights of its federally regulated sites.

CFTC Chairman Michael S. Selig sees the argument as a very cut-and-dry debate. His opinion is that federal laws always take precedence over state laws. The CFTC is adamant that it has exclusive jurisdiction over prediction market sites. And he's ready to fight whenever a state attempts to take a switch that argument.

“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," Selig said in a statement. "This power grab ignores the law and decades of precedent.”

Selig is equally certain that sports-event contract offerings from prediction market sites aren't the same as sports betting from a state-regulated sportsbook.

“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," Selig said. "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.”

Neronha is equally certain that the Rhode Island legal position is the right one

In late May, the Rhode Island Attorney-General's office filed suit against Kalshi and Polymarket in Rhode Island Superior Court. The suit is asking for a declaration that Kalshi’s and Polymarket’s sports-related event contracts amount to sports betting that is subject to Rhode Island state gambling laws.

“There is no substantive difference between sports betting and ‘events contracts’ in this context," Neronha said in a statement. "Kalshi and Polymarket know that, and we know that."

The crux of the Rhode Island lawsuit is that if prediction market sports-event contracts are, in fact, sports betting, then the regulation of these sites needs to be done on a state level. And that would mean the sites would also be responsible for paying the same tax rate as a legal and regulated Rhode Island sportsbook.

“The problem here is that Rhode Island State law heavily regulates gambling, for good reason," Neronha said. "We allege that Kalshi and Polymarket are evading our laws."

CFTC leadership insists that it is the only legal regulator of prediction markets

The CFTC's counterargument is that it has clear and longstanding exclusive jurisdiction to regulate event contracts under the Commodity Exchange Act (CEA). That power preempts state laws purporting to regulate designated contract markets, commonly referred to as prediction markets.

It insists that the CEA is designed to account for innovation in the financial markets. That allows for new and emerging use cases within CFTC-regulated markets.