Sleeper Sues CFTC, Alleges Regulatory Overreach in Prediction Market Application

Fantasy sports platform Sleeper has filed a federal lawsuit against the Commodity Futures Trading Commission (CFTC), claiming the agency is illegally blocking its path to becoming a futures commission merchant (FCM). The lawsuit comes a week after Sleeper accused the agency of illegally delaying its application.

The case could set a significant precedent for regulating event contracts as the prediction market sector continues to grow.

Lawsuit Filed in Washington

According to the complaint, filed in U.S. District Court in Washington, D.C., Sleeper alleges the CFTC and acting Chairman Caroline Pham “flagrantly ignor[ed] applicable law and basic due process protections” when it intervened in Sleeper’s application process with the National Futures Association (NFA).

Sleeper claims that NFA, a self-regulatory body for derivatives intermediaries, had completed its review of the platform’s FCM application. The agency had indicated approval was imminent.

However, according to the lawsuit, the CFTC intervened and instructed the NFA not to approve the application. Instead, it requested that it be diverted to the CFTC for review and approval.

“This case is about the CFTC flagrantly ignoring applicable law, regulations, and decades of practice to block—without process or explanation —what should have been a routine application to serve as a broker in the derivatives markets.

“In doing so, it is cutting off access to, and limiting the growth of, those markets without cause, and at great harm to Sleeper, which is not only being deprived of its due process rights but also losing significant business opportunities because of the arbitrary and capricious nature of the CFTC’s actions,” the company argued in the filling provided by gaming attorney Daniel Wallach on X.

Sleeper argued that the NFA has been the regulatory body overseeing the approval of FCM applications. Meanwhile, the CFTC oversees the application process for Designated Contract Markets (DCMs).

The plaintiff also argues that the CFTC cannot review an application until the NFA has approved it.

Notably, Josh Sterling of Milbank represents Sleeper in the case. Sterling is also rumored to be under consideration by President Trump for the position of CFTC Chairman. The current nominee, Brian Quintenz, who sits on Kalshi’s board, is facing scrutiny, and the Senate might not confirm him.

Timeline of Alleged Interference

The complaint also outlines a timeline of events beginning in late August. That’s when Sleeper claims the NFA indicated its review was complete and approval was expected by early September.

On September 5, however, CFTC counsel notified Sleeper that the application was “incomplete.” The agency and Sleeper agreed on a follow-up call, which the agency abruptly canceled without an explanation.

Sleeper claims CFTC’s involvement is an unlawful pressure on the NFA. It’s also alleged to be a violation of both the Administrative Procedure Act and the Fifth Amendment. It further alleges discriminatory treatment, noting that “similarly situated companies” have obtained approvals to operate in the same space.

The company also stated that it had filed complaints with the Inspector General of both the CFTC and the Treasury Department before bringing the lawsuit.

Regulatory Context

Sleeper’s lawsuit comes at a time when the CFTC’s handling of prediction markets is under scrutiny. The agency has historically been slow to approve or clarify the status of event contracts. That has left companies like Kalshi and Polymarket in prolonged regulatory limbo.

Some critics argue that this slow and hands-off approach creates an uneven playing field. Some companies are advancing through partnerships or exemptions, while others wait years to get approval.

At the same time, lawmakers are beginning to question the agency’s stance, particularly on the highly debated sports event contracts.

Reportedly, a draft letter is circulating on Capitol Hill, led by Senators Catherine Cortez Masto (D-NV) and John Curtis (R-UT). It asks why the CFTC has allowed these contracts to proliferate in ways that critics say blur the line between financial derivatives and gambling. The letter also inquires about the agency’s efforts to protect consumers.

The senators warned that the CFTC’s position of allowing these contracts to grow risks undermining state and tribal sovereignty in regulating sports betting. The lawmakers demanded answers from the agency by the end of October.

That tension between regulatory caution, industry innovation, and political pressure forms the backdrop for Sleeper’s case. It also helps explain why its outcome could resonate well beyond a single company’s application.

Competitors Gain Ground

Sleeper’s claims that “similarly situated companies” have obtained approvals are not without basis, as some rivals are making headway. PrizePicks recently secured NFA clearance to act as a futures commission merchant, following its takeover by Allwyn Entertainment.

Meanwhile, Underdog has partnered with Crypto.com’s Derivatives North America (CDNA) to launch sports prediction markets in 16 states. The collaboration enables users to trade contracts on major sports events through CDNA’s infrastructure, which is directly embedded into the Underdog app.

The partnership has enabled Underdog to offer parlays in states where sports betting is not yet legal, including California and Texas.

The competitors’ entry into the space highlights Sleeper’s claims: while DFS rivals push forward with regulated products and partnerships, Sleeper remains engaged in a regulatory dispute that could force it to play catch-up even if it enters the market.