In a significant legal battle, the U.S. Department of Justice (DOJ) and the Commodity Futures Trading Commission (CFTC) have initiated a lawsuit against Utah, claiming the state’s enforcement actions against prediction markets could inflict "irreparable injury" to federal interests. This lawsuit, filed on Monday, seeks to prevent Utah from applying its gambling laws against exchanges regulated by the CFTC.
The federal complaint comes in response to a civil suit filed by Utah Attorney General Derek Brown against Kalshi and two firms from Susquehanna last week. This action followed a federal judge's ruling in August that dismissed Kalshi’s arguments asserting federal jurisdiction and subsequently rejected a lawsuit filed by the company in February.
The DOJ and CFTC’s 33-page complaint articulates that Utah's efforts to shut down Kalshi's operations significantly harm the federal government's interests, asserting that the injury caused by these enforcement actions is both "irreparable" and necessitates immediate and permanent injunctive relief.
The CFTC emphasized that violations of the Supremacy Clause, which asserts federal law's dominance over state laws, lead to irreparable damage. They are calling for a court acknowledgment that Utah's gambling regulations, its prohibition on betting related to elections, and its public nuisance law do not apply to designated contract markets overseen by the CFTC. Additionally, the agency is seeking both temporary and permanent injunctions to prevent Utah from investigating or enforcing these laws against entities regulated by the CFTC.
"Utah’s actions threaten to shut down prediction markets across a wide variety of markets," said CFTC Chairman Michael Selig. "The CFTC has the expertise and responsibility to defend its exclusive jurisdiction over commodity derivatives, and that’s exactly what we will do."
This legal skirmish is unfolding just days after Utah’s state court filing against Kalshi, which named multiple Kalshi entities along with the Susquehanna firms, alleging they operated an illegal gambling enterprise and categorizing Kalshi's activities as a public nuisance. Gambling remains illegal in Utah, yet Kalshi has advertised its offerings as permissible in all 50 states. Utah's lawsuit seeks to block any betting on sports, elections, politics, and culture from being conducted by its residents, seeking restitution for an estimated $30.6 million to $61.2 million in fees allegedly collected from Utah accounts.
The CFTC's complaint cites Utah's filing at length and argues that the state’s approach jeopardizes the operation of CFTC-regulated exchanges within its jurisdiction. The agency warns that if states are permitted to regulate event contracts, the prospect of facing 50 different state regulators across the United States would financially cripple exchanges. Furthermore, the CFTC highlighted that restricting access for Utah residents would breach a federal requirement for "impartial access" to eligible participants nationwide.
In support of its position, the CFTC referenced historical attempts by states to ban derivatives trading, citing a 1905 opinion from Justice Oliver Wendell Holmes concerning the evolution of society and warning against hasty legislative actions.
Utah, however, claims a recent victory in federal court, with a U.S. District Judge granting Utah a summary judgment in August that affirmed that the Commodity Exchange Act does not supersede the state's gambling laws. Kalshi has appealed this decision, with the Tenth Circuit Court of Appeals denying a request for an injunction that would allow Kalshi to continue operations pending the appeal, which remains unresolved.
Among the backdrop of this legal dispute, the CFTC has similarly sued nine other states concerning prediction markets since April, initiating a wave of litigation that has predominantly targeted states with Democratic leadership, in contrast to Republican-led Utah. The previous CFTC lawsuits resulted in federal judges granting preliminary injunctions in some states, while others, like Wisconsin, rejected the CFTC’s claims.
As the legal landscape unfolds, the U.S. Supreme Court is also poised to consider several pending circuit court decisions that could shape the future of prediction markets nationally. Kalshi's response to the New Jersey lawsuit is due by November 9. Meanwhile, the CFTC is working on rulemaking to potentially classify certain prediction contracts as swaps, which could further influence the outcome of these legal battles.
