CFTC, DOJ Sue Minnesota After State Bans Prediction Markets

On Monday Minnesota became the first state to ban prediction markets, making it a felony to create, operate, manage or advertise such platforms. Hours after Gov. Tim Walz signed the bill, the Commodity Futures Trading Commission and the Department of Justice filed a federal lawsuit seeking to block the law.

The complaint, filed by the CFTC and joined by the DOJ, argues the Minnesota statute conflicts with federal law by regulating event contracts that the agency says are within its exclusive jurisdiction. The filing asks a court to enjoin the ban, warning that allowing the law to take effect would expose exchanges and their partners to felony prosecutions.

The complaint includes the warning: “If Minnesota’s law is permitted to go into effect, the exchanges that offer these longstanding contracts-as well as those who partner with them-can be prosecuted as felons,” and calls the statute a “flagrant and unprecedented incursion into the Commission’s exclusive regulatory sphere.” The regulators asked the court for both preliminary and permanent relief.

CFTC Chair Mike Selig criticized the law in a public statement, asserting Gov. Walz “chose to put special interests first and American farmers and innovators last.” The agency emphasized that farmers and other market participants use CFTC-regulated event contracts to hedge weather and crop-price risks.

The legal dispute is part of a broader fight over whether prediction market platforms are subject to state gambling laws or to federal commodities regulation. Several states have sued platforms such as Kalshi and Polymarket for operating without state gambling licenses, arguing wagers on sports, politics and entertainment violate state law. The platforms counter that their contracts are event-based derivatives regulated by the CFTC and therefore preempt state regulation.

This month the CFTC has filed suits against multiple states. The agency sued Wisconsin on Tuesday and has recently filed actions involving Illinois, Arizona, Connecticut and New York. The federal filings assert exclusive federal authority over markets that trade on the outcomes of events.

State regulators point to changes in the sector over the past 18 months, when some prediction market platforms began listing contracts on a wider range of subjects, including sporting events, ongoing military conflicts, the possible existence of extraterrestrial life and the frequency of celebrity social media posts. Those categories have prompted scrutiny from state attorneys general and gaming regulators, who say they fall within each state’s power to police gambling.

The Minnesota law is notable for imposing felony penalties for operation or advertisement of prediction market platforms. The CFTC and DOJ have asked a federal judge to block the statute while litigation proceeds.