The US markets regulator, the Commodity Futures Trading Commission (CFTC), has served a ninth state with legal papers as it looks to stop Kentucky’s efforts to regulate prediction markets.
The development comes just days after Kentucky Attorney General Russell Coleman sued Kalshi and Polymarket, accusing them of “operating illegal sportsbooks and breaking [state] laws.”
Coleman accused the two platforms of using misleading advertisements to suggest they have received permission to offer sports wagering services in the Bluegrass State.
But the CFTC said Kentucky was trying to shut down CFTC-registered contract markets using state laws. The regulator has repeatedly claimed that prediction markets do not offer sports wagers but rather facilitate “swaps.”
Legal Battles Ready to Come to a Head
“Kentucky is the latest state attempting to shut down federally-regulated event contracts,” said CFTC Chairman Michael Selig.
“Prediction markets provide Kentuckians with valuable information about the likelihood of future events and offer risk management products relied on by Kentucky businesses and individuals,” Selig added.
Legal battles could soon come to a head as Ohio’s case against Kalshi heads to the Supreme Court. Dozens of states, tribes, and former regulators have sent the court letters in support of Ohio.
CFTC-Kentucky Clash: A Ninth Lawsuit for Federal Regulator
The CFTC lawsuit also raises objections to Kentucky authorities’ announcement of a new transaction fee system for prediction market platforms.
In April, the Kentucky General Assembly voted in favor of a bill that imposes a 14.25% tax on prediction market platform transaction fees.
The fees, claimed the CFTC on June 23, are part of a bid to “encourage these platforms to shut down in the state.”
The draft law is set to come into force in January next year. But Kalshi and its crypto exchange partner Crypto.com have launched a bid to overturn it in the courts.
The CFTC said it had also launched lawsuits against state governments in Minnesota, Illinois, and Rhode Island.
The regulator added that it has submitted amicus briefs to the US Court of Appeals for the Sixth and Ninth Circuits, in addition to the Massachusetts Supreme Judicial Court.
Kentucky lawmakers this year claimed that Kalshi and Polymarket operate like sportsbook operators, as prediction markets see participants bet on future events against other platform users.
They also voted in favor of a second law, also in April, which bans existing sports betting platforms from launching prediction market services in Kentucky.
The latest CFTC lawsuit follows the regulator’s filing of similar cases against New York, Wisconsin, Arizona, Connecticut, and (most recently) New Mexico.
