CFTC Sues New York to Stop It From Treating Prediction Markets as Gambling

The CFTC filed a lawsuit against New York on April 24 in the Southern District of New York, seeking a permanent injunction to stop the state from enforcing its gambling laws against federally registered prediction market exchanges.

CFTC New York lawsuit was filed on April 24 in the US District Court for the Southern District of New York. The CFTC announced that it is seeking a declaratory judgment that federal law gives it exclusive authority to regulate event contracts and a permanent injunction preventing New York from enforcing state gambling statutes against its registrants. CFTC Chairman Michael Selig said that “CFTC-registered exchanges have faced an onslaught of state lawsuits seeking to limit Americans’ access to event contracts and undermine the CFTC’s sole regulatory jurisdiction over prediction markets,” adding that New York is “the latest state to ignore federal law and decades of precedent.”

CFTC New York Lawsuit Escalates a Fight Already Spanning Six States

As crypto.news reported, the New York action was triggered directly by the state attorney general suing Coinbase and Gemini earlier that week, alleging their prediction market platforms operated as unlicensed gambling without meeting state gaming licensing requirements or minimum age restrictions. Attorney General Letitia James and Governor Kathy Hochul responded to the CFTC lawsuit by stating that “New York’s gambling laws are designed to protect consumers, whether they are placing bets in a prediction market or a casino,” and vowed to continue defending state law in court. As crypto.news documented, the CFTC had already sued Arizona, Connecticut, and Illinois earlier in April, arguing those states were making “aggressive and overzealous attempts to overstep the CFTC,” with New York’s addition making it the fourth direct state defendant. The CFTC’s core legal argument is that event contracts are classified as swaps under the Commodity Exchange Act, giving the federal agency exclusive jurisdiction and preempting any state gambling statute.

The Third Circuit Ruling That Made New York’s Position Harder

The CFTC’s lawsuit against New York arrives shortly after a significant federal judicial precedent. As crypto.news tracked, the Third US Circuit Court of Appeals ruled in April that New Jersey cannot bar Kalshi from offering sports-related event contracts, finding that the Commodity Exchange Act and CFTC hold exclusive authority over those markets. That ruling strengthened the federal preemption argument the CFTC is now deploying against New York. Courts in Tennessee have similarly issued temporary restraining orders blocking state enforcement against Kalshi. New York’s case will now be decided in federal district court, where the Third Circuit’s reasoning, while not binding, carries significant persuasive weight. A loss for New York would likely cause other states to drop parallel enforcement actions, while a New York victory would almost certainly accelerate the conflict to the Supreme Court.

What a Resolution Means for Prediction Markets and Crypto

The stakes extend beyond the immediate parties. As crypto.news noted, New York’s lawsuit against Coinbase and Gemini sought at least $2.2 billion in fines from Coinbase and $1.2 billion from Gemini, making the financial exposure from state enforcement potentially existential for smaller prediction market operators. Wisconsin has also sued Polymarket, Kalshi, and Robinhood, seeking forfeiture of profits from Wisconsin residents. If the CFTC prevails across its state lawsuits, prediction markets would operate under a single federal regulatory framework with no state-by-state licensing requirements, a structure that would massively expand their addressable market. If states prevail, prediction markets would face a patchwork of 50 different regulatory environments, effectively operating only in states that permit them.

A bipartisan group of US senators has separately proposed legislation to ban sports and casino-style contracts on CFTC-regulated prediction markets entirely, meaning that even a CFTC victory in court could be reversed by Congress if the political will materializes.