US and CFTC Sue New Mexico to Block Enforcement Against Prediction Markets

The United States and the CFTC sued New Mexico to stop it from enforcing state gambling laws against prediction markets.

The suit followed New Mexico's June 4 state-court action against Kalshi, the prediction-market operator, which alleged that Kalshi offered unlicensed online sports betting, including to underage users, in violation of the state's Gaming Control Act and Criminal Code. That case was removed to federal court on June 8.

The government argued (i) the event contracts are "swaps" under the Commodities Exchange Act ("CEA") (ii) the exchanges offering them are CFTC-regulated designated contract markets, and (iii) that the CEA's grant of "exclusive jurisdiction" over swaps traded on those markets expressly preempts state gambling law. The government noted that it has solicited comments for a rulemaking around event contracts which would let the CFTC decide whether event contracts involving activities such as gaming are contrary to the public interest, as confirming federal control. (See prior coverage)

The government asked the court to declare that the state law was preempted under the Supremacy Clause and to enjoin state enforcement against CFTC-regulated markets. It said it had brought similar suits against seven other states and that a federal court in Arizona had already granted a temporary restraining order and a preliminary injunction.