The Commodity Futures Trading Commission and the U.S. government have sued Utah over its enforcement against prediction markets, bringing the agency’s state jurisdiction challenges to 10.
Summary
- Utah faces a federal lawsuit seeking to block state enforcement against federally regulated event-contract markets.
- Federal lawyers want protection covering registered exchanges, their affiliates and partners involved in covered transactions.
- Nine other states appear in the complaint’s list of earlier CFTC preemption actions.
- Kalshi’s separate appeal remains pending after Utah won an August ruling on gambling-law enforcement.
The CFTC’s Oct. 27 announcement said the lawsuit seeks to stop Utah from using state law to shut down federally registered exchanges. Filed a day earlier in the U.S. District Court for the District of Utah, the 33-page complaint names the state and Attorney General Derek Brown as defendants in case 2:26-cv-01055.
Federal lawyers are asking for preliminary and permanent injunctions covering state investigations and enforcement involving transactions on CFTC-regulated designated contract markets, known as DCMs. The requested protection includes regulated entities’ affiliates and partners, according to the filing.
Utah brought its own state-court case on Oct. 20 against Kalshi businesses and Susquehanna trading firms. In a separate federal proceeding, Kalshi had already lost an August ruling on whether federal commodities law prevents Utah from enforcing its gambling restrictions.
CFTC seeks protection for exchanges and their partners
The federal complaint contains one claim under the Constitution’s Supremacy Clause. Its central argument is that the Commodity Exchange Act gives the CFTC exclusive authority over the event contracts targeted by Utah because the government considers them swaps traded on federally regulated exchanges.
The plaintiffs seek a declaration that Utah’s laws are invalid as applied to transactions listed, offered, or executed on those exchanges. Their request identifies the state’s gambling statutes, election-betting prohibition and public-nuisance law.
Beyond stopping enforcement, the proposed injunction would prohibit Utah officials, their successors, agents and employees from investigating regulated entities and their affiliates or partners over the covered transactions. Federal lawyers have requested litigation costs and other relief the court considers appropriate.
Allowing states to regulate the same contracts would expose exchanges to “the prospect of 50 regulators across the country,” the complaint argues. The government contends that state restrictions would obstruct the federal system for listing and overseeing derivatives products.
Paragraph 79 of the complaint says a proposed joint CFTC and Securities and Exchange Commission rule would provide an independent basis for treating the disputed contracts as swaps if finalized. The plaintiffs nevertheless assert that the contracts already qualify under existing law.
The filing separately invokes express, field and conflict preemption, arguing that Congress displaced state authority through the statute’s wording, its regulatory framework and the conflict between state restrictions and federal oversight.
Utah’s Kalshi case seeks fees and trading restrictions
Utah’s attorney general has described Kalshi’s products as unlawful gambling, including contracts tied to sports, elections, politics and other outcomes. His office argues that calling the products event contracts does not exempt the business from state law.
“Kalshi runs an online casino in Utah and calls it a prediction market. That violates Utah law,” Brown said in the state’s announcement.
As crypto.news previously reported, Utah is seeking to recover allegedly unlawful fees estimated at between $30.6 million and $61.2 million through Oct. 19. The state’s calculation assumes roughly one to two cents in fees on more than three billion wagers associated with Utah accounts.
The state complaint seeks restrictions on several contract categories, restitution and the surrender of allegedly unlawful profits. Utah wants court-approved geolocation measures to prevent residents from accessing the disputed markets.
Kalshi spokesperson Jacki McGavick disputed the state’s description in a statement responding to that lawsuit, saying customers trade against one another and determine prices through the exchange. She maintained that the business answers to federal law and that individual states should not control access to it.
Utah has already won a separate preemption ruling
In an Aug. 4 decision, U.S. District Judge Robert Shelby granted summary judgment to Utah in Kalshi’s earlier lawsuit. His order concluded that the Commodity Exchange Act did not preempt enforcement of Utah’s anti-gambling laws against the company.
Kalshi had sued state officials in February and sought an injunction preventing enforcement. Shelby denied the preliminary-injunction request as moot after resolving the state’s summary-judgment motion.
On Sep. 8, the Tenth Circuit denied Kalshi’s emergency injunction request during its appeal. Utah’s attorney general said the underlying appeal remained pending when announcing the October state-court action.
The new federal complaint lists nine other states where the Commission says it has brought preemption actions. They are Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island and Wisconsin.
In its Oct. 27 release, the regulator confirmed proceedings against nine other states and said it had submitted briefs in four federal appeals courts and one state supreme court.
Polymarket joins sports deals as federal oversight develops
On Oct. 26, the NBA named Kalshi and Polymarket its preferred prediction-market exchanges, granting marketing rights and access to official data through Sportradar.
The league’s commercial agreements restrict permissible markets, bar league and team personnel from trading NBA event contracts and require information sharing concerning investigations and suspicious activity. A separate memorandum with the CFTC provides for cooperation concerning professional basketball integrity.
Federal oversight of individual contract types remains active. In a Sep. 22 advisory, CFTC staff warned about mention contracts carrying heightened manipulation risks because settlement may depend on a particular person’s conduct.
The advisory addresses markets involving words spoken, appearances, and interactions. It reminds designated contract markets of their obligation to list only products that are not readily susceptible to manipulation and to provide contract-specific analysis when submitting them under federal rules.