CFTC sues state of Utah over enforcement against prediction markets

US Commodity Futures Trading Commission (CFTC) sues state Utah for enforcing laws against prediction markets. The prediction market operators are federally registered by the CFTC. Filed on October 27, the lawsuit challenges Utah’s civil enforcement actions against CFTC-regulated markets and businesses related to them. CFTC argued that Utah’s efforts restrict the activities of federally registered exchanges run counter to Congress’ decision to give the federal government authority over commodity derivatives. CFTC Chairman Michael S. Selig said: Congress entrusted the CFTC to be the federal regulator with sole responsibility to oversee these markets. The legal actions signify a continuing conflict in the courts between the CFTC and several states trying to regulate the prediction markets. The chairman of the CFTC stated that they will defend their authority to govern the federal futures markets and that event contracts help provide information about the future and offer more than just hedging or speculative opportunities. According to the CFTC, federal laws take priority over conflicting state prohibitions on the operation of registered derivatives exchanges. States that challenge the legality of prediction markets maintain that certain types of contracts, especially those relating to sports, constitute illegal gambling activities that should fall under state jurisdiction. CFTC ‘s action follows the lawsuit filed by Utah against Kalshi recently. The Third District Court of Utah on October 20th, issued $61.2 million in damages to Kalshi in addition to other monetary and injunctive relief. The case comes as a result of a ruling made in August by Judge Robert Shelby of the US District Court, where he dismissed Kalshi’s argument that the federal commodities regulations supersede Utah’s laws regarding gambling. The ruling gave Utah the authority to proceed under its laws, which was a loss for Kalshi regarding its position that its event contracts fall under the authority of the CFTC. Kalshi has turned to the US Court of Appeals for the Tenth Circuit to contest the decision. Selig added: Utah seeks to shut down prediction markets across a wide variety of markets. Event contracts do not just serve hedging and investment purposes – they also provide the public with information about the outcome of future events. Congress entrusted the CFTC to be the federal regulator with sole responsibility to oversee these markets. As I’ve said before, the CFTC has the expertise and responsibility to defend its exclusive jurisdiction over commodity derivatives, and that’s exactly what we’ll do. The lawsuit in Utah is part of a larger battle of the CFTC against many states to reinforce its jurisdiction over registered prediction markets. The agency said in a statement on October 27 that it has also started suing nine more states while filing briefs in four federal courts and one state Supreme Court. Regulators from various jurisdictions argue that these products easily resemble sports betting, making them subject to state gambling rules, regulations, and licensing requirements.