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CFTC Sues New York as Federal War on State Prediction Market Crackdowns Escalates
The CFTC is no longer just defending prediction markets in court. It is now going on the offensive against the states trying to shut them down. New York is the latest target in a rapidly expanding federal legal campaign.
By Liam O'Brien3 min read
- The CFTC has filed suit in the US District Court for the Southern District of New York, seeking an injunction to prevent the state from applying its gambling laws to prediction markets regulated by the federal agency
- The lawsuit, filed on 24 April, argues that federal law grants the CFTC sole jurisdiction over event contracts, directly challenging the cease-and-desist orders and civil enforcement proceedings New York has pursued against prediction market platforms
- The New York action is part of a broader CFTC legal offensive that has already produced similar lawsuits against Arizona, Connecticut and Illinois, with the agency securing a temporary restraining order preventing state interference in Arizona
- On the same day, the CFTC filed an amicus brief with the Massachusetts Supreme Judicial Court in support of Kalshi, reiterating that the Commodity Exchange Act provides a federal framework that overrides conflicting state regulations
- CFTC Chairman Michael Selig has framed the campaign as a defence of decades of federal precedent, warning that allowing individual states to impose separate rules would create a fragmented system that undermines market stability and access
The CFTC Has Declared War on State Prediction Market Regulation
The Commodity Futures Trading Commission has opened a new legal front in its increasingly aggressive campaign to assert federal authority over prediction markets, filing suit against New York on 24 April in an attempt to block the state from enforcing its gambling laws against CFTC-regulated platforms. The action transforms what has largely been a defensive legal posture for the prediction markets industry into an active federal offensive against the states leading the regulatory resistance.
The lawsuit, filed in the US District Court for the Southern District of New York, argues that federal law grants the CFTC exclusive jurisdiction over event contracts and demands an injunction prohibiting New York from pursuing its enforcement actions against platforms the agency already regulates. Those actions have included cease-and-desist orders and civil enforcement proceedings, most recently the Attorney General's lawsuits against Coinbase and Gemini filed just days earlier.
CFTC Chairman Michael Selig was direct in framing the action as part of a deliberate and consistent strategy. He described New York as the latest state to ignore federal law and decades of precedent by seeking to enforce state gambling laws against CFTC-registered exchanges, and stated clearly that the agency will not allow state governments to undermine its authority over these markets. His language was notably pointed, characterising state regulators as overzealous and their actions as a pattern of jurisdictional overreach rather than legitimate consumer protection activity.
New York is the fourth state to face direct legal action from the CFTC following similar lawsuits against Arizona, Connecticut and Illinois. The Arizona case has already produced a tangible result for the agency, with the CFTC securing a temporary restraining order preventing state interference with federally regulated prediction markets there. That early win in Arizona has provided the legal momentum and precedent the agency is now deploying as it expands its campaign to additional states.
The simultaneous filing of an amicus brief with the Massachusetts Supreme Judicial Court on the same day adds another dimension to the CFTC's 24 April legal activity. The brief, submitted in support of Kalshi in its ongoing Massachusetts battle, restates the agency's core argument that the Commodity Exchange Act establishes a comprehensive federal scheme for derivatives regulation that pre-empts state-level interference. The Massachusetts case represents one of the more advanced state-level challenges to prediction markets, making the CFTC's intervention there particularly significant.
The CFTC has also taken its federal pre-emption argument to the US Court of Appeals for the Ninth Circuit, further extending the geographic and jurisdictional scope of a legal campaign that is now running simultaneously across multiple federal courts and appellate venues.
The central legal theory underpinning all of these actions is consistent. Congress enacted the Commodity Exchange Act to ensure uniform federal supervision of derivatives trading, and allowing individual states to apply their own gambling laws to products regulated under that framework would create precisely the fragmented, inconsistent regulatory environment the Act was designed to prevent. Whether that argument ultimately prevails at the Supreme Court level, where this dispute is almost certain to land, remains the defining legal question for the entire prediction markets sector.
The CFTC's Offensive Strategy Carries Significant Political Risk
Federal agencies suing states is not unprecedented, but it is politically charged, particularly when the federal agency is perceived as protecting a fast-growing and controversial industry against consumer protection measures supported by state attorneys general and elected officials. The CFTC's characterisation of state regulators as overzealous is unlikely to generate goodwill in the states being sued, and it risks framing the prediction markets debate as federal regulators protecting industry interests against state consumer protection efforts. That framing is politically dangerous in an environment where congressional sentiment toward prediction markets is already deeply ambivalent, as the House Agriculture Committee hearing demonstrated. The CFTC needs to win the legal argument without losing the political one, and those two objectives are pulling in different directions.
Four State Lawsuits in Rapid Succession Signal an Unsustainable Escalation
The pace at which the CFTC is filing actions against individual states, Arizona, Connecticut, Illinois and now New York within a short period, suggests the agency is pursuing a strategy of overwhelming the state-level opposition with simultaneous legal pressure across multiple fronts. That approach has tactical merit if the goal is to prevent any single state from establishing a precedent that other states can follow. But it is also resource-intensive, politically provocative and dependent on winning enough early cases to deter further state action before the legal and political costs of the campaign become unsustainable. The Arizona temporary restraining order is a useful early win. A loss in New York, the country's most prominent legal jurisdiction, would significantly damage the momentum the agency is trying to build.
The Amicus Brief Strategy Is the More Sophisticated Long-Term Play
While the direct state lawsuits generate headlines, the CFTC's filing of amicus briefs in cases like the Massachusetts Kalshi appeal may ultimately prove the more consequential legal strategy. Amicus briefs allow the agency to shape the legal reasoning in cases it is not directly a party to, building a body of judicial precedent that reinforces the federal pre-emption argument across multiple courts simultaneously. If that reasoning is adopted consistently by federal and appellate courts, it creates a legal foundation that makes future state enforcement actions progressively harder to sustain, even without the CFTC filing a direct lawsuit in every state. The combination of direct legal action in the highest-profile states and amicus participation in the broader case law is a sophisticated two-track approach that reflects an agency that is playing a long game rather than simply reacting to individual state provocations.
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Why This Matters
iGaming Times analysis: The CFTC's lawsuit puts a clean test on whether prediction-market platforms regulated as commodity exchanges sit beyond state gambling authority. If federal preemption holds, every state-level prediction-market crackdown becomes legally vulnerable — and operators who currently scope their products as event contracts gain a much wider opening. If preemption fails, the framework that makes Kalshi and a returning Polymarket viable nationally collapses into a state-by-state gambling-licence problem. Few iGaming legal questions in 2026 carry comparable downstream weight.
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