CFTC sues Kentucky to block state action on prediction markets
The CFTC sued Kentucky in federal court to block state lawsuits against five prediction market operators, saying the contracts are federal swaps under CFTC jurisdiction.
The Commodity Futures Trading Commission filed suit in federal court on Tuesday to stop Kentucky from enforcing recent legal actions against five prediction market operators. The agency asked the court for declaratory and injunctive relief.
Kentucky sued Polymarket and Kalshi last week and named Kalshi partners Coinbase, Robinhood and Webull. The state alleges the platforms operated without a Kentucky gaming license and offered event contracts that meet the state’s legal definition of sports wagering.
Kentucky also said the platforms provide few or no resources for users with gambling problems and pointed to the Kentucky Horse Racing and Gaming Corporation’s authority over sports betting since 2023.
In its complaint the CFTC characterizes Kalshi and Polymarket as designated contract markets and says the event contracts they list are swaps regulated under the Commodity Exchange Act. The filing asserts Coinbase, Robinhood and Webull are CFTC-registered futures commission merchants that may offer event contracts in partnership with a designated contract market.
The complaint challenges a Kentucky law that applies a 14.25% excise tax to prediction market transaction fees, calling the levy an effort to make the business model economically unviable. The filing states, “This tax essentially makes it impossible for prediction markets to operate in Kentucky.”
CFTC Chair Mike Selig wrote, “Kentucky is the latest state attempting to shut down federally-regulated event contracts.” He said the commission is committed to maintaining exclusive federal jurisdiction over prediction markets.
The agency has filed suits against nine states after state regulators sought to apply local gambling and licensing rules to prediction markets, including a recent case to block New Mexico from enforcing state gaming laws against Kalshi.
In May, former President Donald Trump voiced support for the CFTC retaining authority over prediction markets. Donald Trump Jr. has disclosed investments and advisory roles connected to Polymarket and Kalshi.
The federal complaint names Governor Andy Beshear, Attorney General Russell Coleman and the Kentucky Horse Racing and Gaming Corporation among the defendants and asks the court to bar enforcement of Kentucky’s claims and tax provisions against the listed operators and their partners.
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