The Commodity Futures Trading Commission (CFTC) has filed a lawsuit against Kentucky, intensifying a dispute between federal and state authorities regarding the classification of prediction market platforms under federal commodities regulations versus state gambling laws.
This lawsuit comes in response to Kentucky Attorney General Russell Coleman’s recent action against Kalshi and Polymarket, which accuses these platforms of running unauthorized sportsbooks and breaching state legislation.
“Kalshi and Polymarket are essentially functioning as unlawful sportsbooks in Kentucky and disregarding our legal standards,” stated Kentucky Attorney General Russell Coleman in a press statement made earlier this week detailing the litigation against the companies.
“These colossal corporations, along with their elaborate legal setups, simply don’t pass the integrity test,” Coleman argued. “As one of our state’s legislative figures aptly put it, ‘If it resembles a duck and sounds like a duck…’”
Kentucky Attorney General Russell Coleman
The CFTC contends that these platforms offer federally regulated event contracts that are categorized as swaps, thus placing them within the agency’s jurisdiction. States confronting these platforms argue that sport-related event contracts closely resemble sports betting, which they are responsible for regulating.
“Kentucky is the most recent state attempting to dismantle federally regulated event contracts,” commented CFTC Chair Michael Selig in a formal statement. “Prediction markets deliver critical insights to the citizens of Kentucky regarding the probability of future occurrences and provide risk management instruments essential for Kentucky’s businesses and individuals.”
“As I have consistently affirmed, the CFTC is resolutely dedicated to upholding its exclusive jurisdiction over prediction markets, and the lawsuit filed against Kentucky today is yet another instance of the Commission safeguarding its federal authority,” he added.
Kentucky marks the ninth state to face legal action from the CFTC over this issue and is notable as the first involving a Republican Attorney General.
A total of twenty states are currently engaged in legal proceedings against prediction market platforms, with one state moving to prohibit them. Earlier this year, Kentucky also instituted an excise tax on these platforms, further inciting criticism from the CFTC.
The agency has amplified its commitment to asserting jurisdiction since Selig’s elevation to Chair late last year. In February, Selig expressed his intention to challenge any state attempts to regulate these platforms. Additionally, former President Trump indicated last month that it was “imperative” for the CFTC to maintain exclusive authority over prediction markets.