CFTC sues New York gaming regulators over prediction markets crackdown

MANHATTAN (CN) ­— The Commodity Futures Trading Commission on Friday brought a civil lawsuit against the State of New York over the state’s efforts to regulate online prediction markets like Kalshi and Coinbase, where people can make prediction-based trades on the outcome of real-world events like sports and elections.

“New York’s attempt to shut down federally regulated markets intrudes on the exclusive federal scheme Congress designed to oversee national swaps markets,” the federal regulator wrote in its complaint, filed in the Southern District of New York Friday afternoon.

The CFTC asserts in its complaint that New York Attorney General Letitia James’ recent litigation against prediction market platforms runs afoul of the Commodity Exchange Act, which designates the CFTC as the federal agency with “exclusive jurisdiction” over the regulation of commodity futures, options, and swaps traded on federally regulated exchanges.

“Event contracts are derivative instruments that enable parties to trade on their predictions about whether a future event will occur,” the agency wrote. “When structured as ‘swaps’ or futures contracts as defined by the Commodity Exchange Act, and traded on CFTC-regulated exchanges, they are subject to the exclusive jurisdiction of the CFTC.”

“Offering event contracts on a designated contract markets cannot, in and of itself, be an activity that is unlawful under any state law because such an application of state law would conflict with the CEA,” the commission added later in the complaint.

The agency seeks an injunction blocking New York’s enforcement actions, arguing they violate the supremacy clause and are preempted, unconstitutional and invalid.

In addition to James, the CFTC complaint names New York Governor Kathy Hochul, the New York State Gaming Commission, Executive Director of the New York State Gaming Commission Robert Williams and six state gaming commissioners as defendants.

Hochul and James issued a joint statement on Friday evening standing by the state’s regulatory enforcement actions, declaring they “look forward to continuing to defend our laws in court.”

“Once again, this administration is prioritizing big corporations over consumers and New Yorkers’ best interests. New York’s gambling laws are designed to protect consumers, whether they are placing bets in a prediction market or a casino," they wrote. “When gambling platforms, including prediction markets, violate our laws, we will not hesitate to hold them accountable.”

The CTFC complaint comes the same week James announced a pair of civil enforcement actions against Coinbase and Gemini, accusing them of operating unlicensed gambling businesses and seeking forfeiture of profits.

“Gambling by another name is still gambling, and it is not exempt from regulation under our state laws and constitution,” James said in a statement. “Gemini and Coinbase’s so-called prediction markets are just illegal gambling operations, exposing young people to addictive platforms that lack the necessary guardrails. My office is taking action to protect New Yorkers and stop these platforms from violating the law.”

James is looking to force the companies to forfeit profits, distribute restitution to consumers who participated and pay fines equal to three times the profits the companies made through the scrutinized actions.

Those two cases, initially filed in the Manhattan Supreme Court, have since been transferred to the Southern District of New York.

On Friday, James joined a bipartisan group of 37 attorneys general in filing an amicus brief supporting Massachusetts’ lawsuit against the prediction market platform Kalshi, saying it illegally offers sports betting under state law.

Kalshi operates a prediction market where users trade contracts on event outcomes. It recently partnered with Coinbase to allow users in all 50 states to place wagers on politics, sports and economics through the app.

James has issued consumer alerts warning New Yorkers about gambling risks and industry alerts urging compliance with state law.

Online prediction platforms such as Polymarket have grown in popularity since Donald Trump’s reelection in November 2024, in part because they accurately predicted his victory.

Federal prosecutors charged a master sergeant in the U.S. Army Special Forces in the Southern District of New York on Thursday with using classified information to wager on the removal of Venezuelan President Nicholas Maduro, profiting more than $400,000.

Gannon Ken Van Dyke faces three counts of violating the Commodity Exchange Act, each carrying a maximum sentence of 10 years in prison if convicted. He is also charged with one count of wire fraud and one count of unlawful monetary transaction, which carry maximum sentences of 20 years and 10 years, respectively.

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