The Commodity Futures Trading Commission (CFTC) is stepping up its legal assault on US states that try to take regulation of prediction markets into their own hands, with New Mexico the latest to be served with legal papers.
New Mexico officials have launched two recent lawsuits against the operator Kalshi, claiming it is offering illegal sports betting services in the state and allowing people under 21 to gamble on its platform.
In mid-May, the Mescalero Apache Tribe and Sandia, Pojoaque, and Isleta pueblos launched a lawsuit against Kalshi. The tribes claimed Kalshi was illegally providing betting services on their lands.
Days later, New Mexico Attorney General Raúl Torrez followed up with an attempt to sue Kalshi for offering residents access to a platform that the AG said “functions as a sportsbook.”
“Kalshi has ignored [tribal and state laws] entirely while offering online sports betting within the state,” said Torrez.
But in legal documents filed at a branch of the New Mexico District Court, the CFTC repeated its previous assertion that Kalshi does not provide sports betting services.
Instead, the regulator said, it offers event contracts. These function as “swaps” under federal commodities laws, said the CFTC.
New Mexico: Regulator Takes Aim
The regulator added that Kalshi is a Designated Contract Market provider, and thus operates in the CFTC’s “exclusive jurisdiction.”
The regulator has entered into similar legal battles with other states that have tried to police prediction market operators, including Wisconsin, New York, Arizona, Connecticut, and Illinois.
The Torrez-backed New Mexico lawsuit accused Kalshi of essentially repackaging conventional sports betting under the banner of contracts.
Torrez noted that many of the sports-related contracts available on the Kalshi platform are similar to those provided by sportsbook operators.
These include World Cup-related contracts that involve the number of goals players will score. They also include contracts on the results of individual sports games. These contracts, New Mexico officials argued, closely resemble outright betting options on sportsbook platforms.
The state officials said Kalshi must apply for a gaming operating permit and a manufacturer’s license under the terms of the Gaming Control Act.
They claimed that Kalshi is also failing to address New Mexico’s problem-gambling prevention protocols by operating outside its regulatory umbrella.
But the CFTC called on the court to enforce its “exclusive jurisdiction” and rule that New Mexico gambling laws are “preempted and unenforceable as applied to transactions listed, offered, or executed via CFTC-regulated markets.”
CFTC: Waging Legal War
The regulator fired a warning at other states that may be considering similar cases against platforms the CFTC says it is regulating.
“New Mexico is not the first state that has attempted to invade the Commission’s exclusive jurisdiction over swaps,” the CFTC wrote in the document.
“Already, several federal courts have swiftly responded by issuing temporary restraining orders and preliminary injunctions barring the states from enforcing their gambling laws against CFTC-regulated exchanges that offer sports-related event contracts,” the regulator added.
States, tribes, gaming industry groups, and sportsbook operators have already expressed a willingness to fight back.
Last week, a group of 39 states, the District of Columbia, multiple tribes, and the American Gaming Association filed briefs in support of Ohio in its own legal struggle against Kalshi.
