The federal government has initiated legal action against Arizona, Connecticut, and Illinois, arguing that their attempts to oversee prediction markets should fall solely under the purview of federal law.

These lawsuits, filed during the Trump administration, represent the first instance where the Commodity Futures Trading Commission (CFTC) has sought to prevent state gaming regulators from controlling operators that provide event contracts.

The federal government contends that the states’ actions against platforms like Kalshi, Polymarket, Crypto.com, and Robinhood transgress the CFTC’s exclusive jurisdiction over national swaps markets.

Event contracts enable users to speculate on the outcomes of various events, ranging from sports matches to electoral races.

In legal filings against the states, the United States claimed that Connecticut and Illinois “misunderstand” the fundamental nature of these contracts, asserting that state regulation would contravene the U.S. Constitution.

“This court should halt the persistent efforts by defendants aimed at undermining the consistent enforcement of federal law,” the government stated.

The lawsuits follow orders from state regulators halting operations of designated contract markets and futures commission merchants, after they alleged that the platforms facilitated unauthorized sports gambling.

Arizona has escalated matters by filing criminal charges against Kalshi in March, alleging it promotes illegal wagering and betting on elections.

CFTC Chairman Michael Selig emphasized that the agency will vigorously defend its jurisdiction.

The CFTC “will actively protect its exclusive regulatory authority over these markets and defend market participants against overly aggressive state regulators,” Selig stated.

The defendants comprise the governors and attorneys general of each state: Katie Hobbs and Kris Mayes from Arizona, Ned Lamont and William ​Tong from Connecticut, and JB Pritzker and Kwame Raoul from Illinois.

State officials have vehemently opposed the federal suit, presenting their actions as necessary for consumer protection.

William Tong remarked: “The Trump Administration is rehashing industry claims that have been dismissed in courts nationwide,” and added, “We will fiercely uphold Connecticut’s practical consumer protection regulations.”

A representative for Pritzker accused the administration of “favoring” prediction market companies that prioritize profits while leaving Illinois residents exposed to gambling products without essential consumer protections or oversight.

While the CFTC classifies them as financial instruments under federal regulation, numerous states and tribal gaming regulators argue that such contracts resemble gambling products that should be regulated by state laws, especially amidst rising concerns regarding underage gambling and insufficient safeguards.