The Commodity Futures Trading Commission has invoked its emergency authority to order prediction market Kalshi to continue operating despite a lawsuit by New York seeking to shut down its event contracts. The order marks a sharp escalation of the jurisdictional battle between federal derivatives regulators and states that view the contracts as illegal gambling.
The CFTC said in a Tuesday (Aug. 11) press release that it acted after KalshiEX notified the agency of a market emergency stemming from a July 31 lawsuit by New York Attorney General Letitia James. The commission ordered Kalshi to continue operating in accordance with the Commodity Exchange Act’s Core Principles governing federally regulated designated contract markets.
The unusual intervention puts the CFTC directly between Kalshi and New York at a critical point in a broader fight over who has authority to regulate prediction markets. The CFTC maintains that federally regulated event contracts are derivatives subject to a uniform national regulatory framework, while states increasingly contend that contracts based on sports and other events constitute gambling subject to state law.
James’ lawsuit seeks a temporary restraining order barring Kalshi from offering event contracts nationwide and more than $36 billion in damages. The complaint treats Kalshi as an unlicensed gambling business and seeks three times its alleged gains as well as $100,000 for every sports wagering offer, according to Decrypt.
CFTC Chairman Michael Selig framed the commission’s intervention as necessary to prevent a state enforcement action from disrupting a national derivatives market before courts have resolved the underlying jurisdictional dispute.
“Congress did not intend for derivatives exchanges to be regulated under a patchwork of state gaming laws,” Selig said in the press release. He argued that Kalshi and similar platforms are interstate financial exchanges because they match bids and offers from customers in different states and clear transactions centrally.
The action marks another escalation in an increasingly aggressive federal-state confrontation. The CFTC has filed lawsuits against Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island and Wisconsin to defend what it considers the jurisdiction Congress granted it. The commission has also filed amicus briefs in litigation before federal appeals courts and the Massachusetts Supreme Judicial Court.
The legal record remains mixed. Decrypt reported that Kalshi was denied a preliminary injunction against New York’s gaming regulator by a federal judge in July and subsequently was denied protection pending appeal. Michigan has restricted its sports markets, and Washington won a preliminary injunction, while Kalshi has secured favorable decisions in litigation involving New Jersey and Minnesota.
Meanwhile, the New York confrontation is expanding beyond the attorney general’s lawsuit.
The New York City Council disclosed this week that it is investigating Kalshi, Polymarket, Coinbase and Gemini Titan over alleged deceptive marketing practices and possible targeting of minors. According to the Wall Street Journal, Council Speaker Julie Menin sent letters Aug. 11 seeking information about how the companies comply with consumer-protection laws and gave them 14 days to respond.
The council’s inquiry includes more than 60 questions concerning the companies’ New York revenue, numbers of city users and marketing operations. Although the council cannot bring criminal charges, it has subpoena power and is considering legislation involving increased enforcement, public education, health measures and the use of public funds, per the Journal. It also plans public hearings.
The marketing inquiry differs legally from the state’s challenge to Kalshi’s event contracts, but illustrates how prediction markets increasingly face regulatory pressure on multiple fronts.
The CFTC’s emergency order now raises the stakes considerably. Rather than merely supporting prediction markets in litigation, the federal regulator is using its own statutory authority to require a regulated exchange to keep operating in the face of a state effort to stop it.
CFTC spokeswoman Brooke Nethercott told the Wall Street Journal, “The New York State Attorney General does not set the rules for national derivatives markets.” The CFTC, she said, considers Kalshi’s continued operation necessary to preserve “market integrity and stability.”
That leaves courts confronting an increasingly stark jurisdictional choice: whether federally regulated prediction markets are national derivatives exchanges governed principally by the CFTC, or businesses whose event contracts remain subject to state gambling and consumer-protection authority.
