The Commodity Futures Trading Commission (CFTC) has filed a lawsuit in New York to halt the state’s actions against licensed prediction market platforms.
“New York has sought to enforce state laws against CFTC-registered entities through cease-and-desist letters and civil enforcement suits,” said the organization in a press release.
The CFTC is seeking an injunction to prevent the state from taking further enforcement action against registered companies.
CFTC Responds to NY AG Lawsuits
The action follows New York’s Attorney General Letitia James filing lawsuits against Coinbase and Gemini, two CFTC-licensed operators, last week.
James claims the companies are violating state laws by offering illegal gambling services on their platforms. The CFTC, on the other hand, asserts that it has exclusive jurisdiction over the industry and, as a federal agency, has greater authority than state regulators.
“CFTC-registered exchanges have faced an onslaught of state lawsuits seeking to limit Americans’ access to event contracts and undermine the CFTC’s sole regulatory jurisdiction over prediction markets,” said CFTC Chairman Michael Selig.
In addition to the lawsuits against Coinbase and Gemini, Wisconsin filed a complaint last week against Kalshi, Polymarket, Crypto.com, Robinhood, and Coinbase.
In total, there are legal cases between regulators and prediction markets in 16 states.
CFTC Vows to Defend Companies
“New York is the latest state to ignore federal law and decades of precedent by seeking to enforce state gambling laws against CFTC-registered exchanges,” added Selig. “As I’ve said before, the CFTC will not allow overzealous state governments to undermine the agency’s longstanding authority over these markets.”
Earlier this month, the CFTC filed lawsuits against gambling regulators in Arizona, Connecticut, and Illinois for their actions against prediction markets.
A judge preliminarily ruled in favor of the organization and blocked Arizona from enforcing criminal charges brought against Kalshi.
Insider Trading Scandals Put Pressure on CFTC
The majority of the complaints from states have centered on CFTC-licensed companies offering sports markets. States claim the markets are no more than sports betting and, therefore, should be regulated like licensed gambling operators.
Additionally, several insider trading scandals have put further pressure on the CFTC to take action against licensees.
Last week, US soldier Gannon Ken Van Dyke was arrested for wagering on the capture of Nicolas Maduro at Polymarket. Van Dyke was involved in the operation and used his insider knowledge to win over $400,000 on related markets.
Officially, wagering on markets related to war is prohibited under the terms of the Commodity Exchange Act (CEA). The markets appeared on Polymarket’s international site, which is not officially available to US citizens.
However, as the company is now regulated by the CFTC in the US, lawmakers are demanding that the agency take stronger action against Polymarket.
Regulators are Supposed to Regulate
Prediction market commentator Steve Ruddock noted the difference between gambling regulators and the CFTC in his newsletter last week. Ruddock wrote, “State gambling regulators hold the industry accountable, while the Commodity Futures Trading Commission lets the industry hold itself accountable.”
Ruddock gives the example of what might happen if an athlete were found to be gambling on their own games at a licensed sportsbook.
The company would “have to explain what happened, lay out a clear plan to prevent it happening in the future, and get hit with a fine or penalty that would increase with each incident or based on how negligent the operator was and how egregious the violation was.”
Yet in Van Dyke’s case, the CFTC has filed a complaint against the soldier, but does not appear to be taking any action against Polymarket, even as the company continues to promote prohibited war markets to users.
“I think the CFTC will look for opportunities to exercise its enforcement authority by taking swift and decisive action against conduct that appears to violate CFTC rules, such as insider trading,” lawyer Stephen Piepgrass told CasinoBeats.
“If the CFTC can demonstrate that it is actively and effectively policing these markets, this undermines the states’ claims that they are the authorities best positioned to do so.”
Under the current administration, however, the agency appears highly reluctant to take any enforcement actions against licensed companies. Instead, the lawsuit in New York shows that it is willing to go to court to defend platforms against any attacks.
