The US Commodity Futures Trading Commission (CFTC) officially sued the State of Utah and Attorney General Derek Brown in the US District Court for the District of Utah on Monday local time. The federal lawsuit comes a week after Utah’s attorney general took prediction market Kalshi and its affiliates to court. Utah authorities are seeking to recover up to $60 million in profits (previously reported at $61 million) over allegations that the platform facilitated illegal gambling.
The CFTC rejected the gambling allegations and reaffirmed the legal standing of products offered by prediction markets. According to the CFTC, event contracts traded on prediction market platforms qualify as swap instruments under the federal Commodity Exchange Act. In addition to their swap status, exchange operators like Kalshi also hold official designation as Designated Contract Markets (DCMs).
CFTC Chief Mike Selig emphasized that federal regulators hold exclusive jurisdiction over derivative commodity exchanges in the United States. Selig stated that actions by state law enforcement agencies attempting to block CFTC-approved products violate the federal legal principle of preemption. The district court lawsuit underscores the jurisdictional boundary between the national commodity watchdog and state prosecutors.
Swap Status Against Local Gambling Allegations
Derek Brown’s legal action began when the Utah Attorney General’s Office sued Kalshi and its affiliated entities alleging violations of state gambling laws. State authorities are attempting to claw back Kalshi’s operational profits, valued at $60 million to $61 million. For federal regulators, the state lawsuit clashes with the official authorization already granted to the exchange by the federal government.
Classifying event contracts as swaps places oversight of Kalshi squarely under the mandate of the federal Commodity Exchange Act. Under DCM status, derivative exchanges operate according to the standards and approvals of the national watchdog. Utah’s action of targeting CFTC-licensed products is viewed as disregarding the principle that federal regulation preempts state-level enforcement.
Jurisdictional Showdown Expands to 10 States
The dispute in Utah broadens the legal confrontation between the federal government and state authorities across the United States. The CFTC is currently facing similar disputes in 10 states seeking to apply local gambling regulations to prediction markets. Amid this pushback, the State of New Jersey has even filed a lawsuit with the US Supreme Court to defend its local regulatory authority.
The jurisdictional battle has also sparked conflicting views among former US financial architects. Former SEC Chair Gary Gensler and former Senator Chris Dodd previously filed an amicus brief opposing the CFTC’s interpretation. Gensler and Dodd argued that the Dodd-Frank Act never transferred oversight of gambling from the states to the CFTC.
For prediction market participants and event contract traders, the Utah proceedings will serve as a bellwether for the operational certainty of exchanges in the US. The judge’s eventual ruling will demonstrate whether a CFTC exchange license is sufficient to protect trading activities nationwide, or if operators must continually navigate separate lawsuits in each state. Reported by Cointelegraph.
Previously: NBA Partners with Kalshi and Polymarket as Official Partners - As Utah Sues for Up to $61 Million in Fees
Disclaimer: This article is for informational and educational purposes only, not financial advice. Cryptocurrency assets are highly volatile and carry significant risk. Always do your own research (DYOR) and never invest more than you can afford to lose.
