The Commodity Futures Trading Commission (CFTC) has filed a lawsuit against Minnesota after the state approved legislation that restricts prediction markets.
Governor Tim Walz signed off on SF4511, a bill that explicitly bans prediction markets on a range of events, including sports, wars, elections, and the weather.
The CFTC said it is suing the state to protect Minnesota farmers who rely on prediction markets to mitigate the risks of adverse weather affecting their crops.
“This Minnesota law turns lawful operators and participants in prediction markets into felons overnight,” said CFTC Chairman Michael Selig in a press release. “Minnesota farmers have relied on critical hedging products on weather and crop-related events for decades to mitigate their risks. Governor Walz chose to put special interests first and American farmers and innovators last.”
Most Aggressive Move Yet Against Prediction Markets
The CFTC also described lawmakers in Minnesota approving the new law as “the most aggressive move by a state to shut down CFTC-regulated markets and undermine the federal regulatory regime set up by Congress more than 50 years ago.”
The complaint references other states that have largely taken exception to sports prediction markets, but criticizes Minnesota, which “targets all event contracts“, including ones on the weather, which “have obvious utility in hedging against significant commercial and economic risks”.
The CFTC has also filed lawsuits in Arizona, Connecticut, Illinois, and New York in response to the states’ attempts to crack down on prediction markets.
Arizona remains the only state to file criminal charges against a prediction market operator. The CFTC’s lawsuit successfully blocked the state from enforcing the charges against Kalshi.
Prediction Markets Ripe For Scandal
Sen. John Marty, one of the sponsors of the Minnesota bill, said its approval is a sign that lawmakers agree that prediction markets have gone out of control.
“It shows that people of both parties, people who are pro-gambling and anti-gambling together, can recognize that the prediction markets are ripe for conflict of interest, things like insider trading for politicians, for others. It’s a huge thing ripe for scandal. And it’s gone out of control,” said Marty.
Kalshi fined Minnesota Senator Matt Klein for wagering on himself to win his primary. Klein said he supported the ban as his experience, “like many other Minnesotans, points to the need for clearer rules and regulations for these types of markets.”
Weather markets have also come under scrutiny recently after a Polymarket user in France allegedly used a hair dryer to manipulate a temperature sensor. Three separate accounts made more than $280,000 by betting that the temperature in Paris would reach 19 °C on 15 April, with the reading unexpectedly jumping by 5 °C that evening.
French authorities are investigating, and Polymarket has changed the sensor that it uses to settle markets.
CFTC Claims To Be Vigilant Regulator
The CFTC has rejected claims that prediction markets are out of control and says it is a vigilant regulator that will take action in cases of insider trading.
The Wall Street Journal published an opinion piece claiming that prediction markets are gambling and insider trading is going unpunished due to a lack of regulation. The CFTC responded with an open letter to the newspaper’s editor rejecting the accusations.
“Claims that ‘insider trading is rampant,’ and that our insider trading rules are ‘fuzzier’ than others are simply untrue,” Selig wrote in the letter.
“The CFTC continues to serve as a vigilant regulator of prediction markets,” he added.
Last week, the agency also said it has partnered with major sports leagues, including the MLB, to protect market integrity.
Minnesota remains one of the few states in the US with no legal sports betting. In addition to targeting prediction markets, lawmakers are advancing legislation to ban sweepstakes casinos.
