US Sues Minnesota to Block State Ban on Prediction Markets

The United States and the CFTC ("plaintiffs") sued the State of Minnesota to block a newly enacted state law that would criminalize the operation of prediction markets.

In a Complaint filed in the U.S. District Court for the District of Minnesota, the plaintiffs said Governor Tim Walz signed into state law the first outright ban on prediction markets in the United States. The law makes it a felony to create, operate, facilitate, or advertise a prediction market.

The plaintiffs allege that the event contracts targeted by the state law are "swaps" under the Commodity Exchange Act and that the prediction markets offering them are CFTC-regulated Designated Contract Markets ("DCMs"). Because the Act grants the Commission exclusive jurisdiction over swaps traded on DCMs, the plaintiffs argue, the state may not prohibit or regulate those contracts or the exchanges that list them.

The plaintiffs describe the law as sweeping in scope, reaching not only DCMs but also Futures Commission Merchants and Derivatives Clearing Organizations subject to CFTC jurisdiction. The plaintiffs contrast Minnesota's approach with other states which have largely tried to enforce existing gambling laws against sports-related event contracts, calling the state law a tailor-made prohibition that targets all event contracts, including contracts on government action and weather conditions - activities that have traded for decades.

Plaintiffs argue that the challenged provisions violate the Supremacy Clause and are preempted by the Commodity Exchange Act. The plaintiffs asked the Court to declare the law unconstitutional and to issue preliminary and permanent injunctions barring the defendants from investigating or enforcing it.