CFTC sues New Mexico to block Kalshi state action

The Commodity Futures Trading Commission filed a federal lawsuit against New Mexico Governor Michelle Lujan Grisham, Attorney General Raúl Torrez and members of the New Mexico Gaming Control Board to prevent the state from applying its gaming laws to prediction market operator Kalshi. The CFTC argues Kalshi’s event contracts are “swaps” and that Kalshi operates as a Designated Contract Market (DCM) subject to the agency’s exclusive jurisdiction. The complaint asks the court to declare state laws inapplicable to CFTC-registered DCMs and to issue a permanent injunction barring state enforcement.

The suit followed New Mexico’s June 4 complaint, which alleges Kalshi offered unlicensed sports betting to state residents and allowed users aged 18 to 20 to trade on the platform, below the state minimum gambling age of 21. New Mexico contends Kalshi’s sports event contracts function like traditional sports bets and therefore violate state gaming statutes.

In its federal filing, the CFTC contends event contracts meet the Dodd-Frank Act definition of swaps and that New Mexico’s effort to regulate a registered DCM interferes with the federal statutory scheme governing commodity derivatives. The agency asked the court to rule that state gaming statutes that would reach transactions on CFTC-regulated DCMs are invalid and to block the state from pursuing enforcement against prediction market platforms.

CFTC Chair Mike Selig criticized New Mexico’s action, calling it an attempt to “nullify black letter law and decades of judicial precedent by imposing state gaming laws on federally regulated derivatives exchanges subject to the CFTC’s exclusive jurisdiction.” He added the commission will defend its authority to oversee commodity derivatives.

The CFTC has brought similar suits after other states took enforcement actions against prediction markets, naming officials in Rhode Island, Wisconsin, Minnesota, New York, Arizona, Connecticut and Illinois in separate cases. Kalshi has also faced litigation in multiple jurisdictions, including matters that reached the Sixth Circuit.

Gary Gensler, a former chair of the Securities and Exchange Commission and the CFTC, filed an amicus brief in the Sixth Circuit arguing the Dodd-Frank Act was not intended to cover sports event contracts. In the brief he wrote, “Congress did not include sports betting contracts within the statutory Dodd-Frank definition of swap,” and added that sports bets are “very rarely, if ever, about hedging.”

The litigation asks the courts to decide whether event contracts tied to sports and other outcomes are federal derivatives regulated by the CFTC or forms of gambling subject to state gaming laws. The outcome of the New Mexico case will be monitored by market participants, state regulators and prediction market operators.