CFTC Sues New Mexico Over Kalshi as Prediction Market Fight Grows

The Commodity Futures Trading Commission (CFTC) has sued New Mexico after the state tried to block prediction market operator Kalshi.

New Mexico claims Kalshi offers unregulated sports betting, while the CFTC argues the platform falls under federal regulation and is subject to the agency’s exclusive authority under commodities law.

New Mexico’s Case Against Kalshi, and The CFTC Fires Back

On June 4, New Mexico filed a lawsuit against Kalshi. State officials argued that the company’s sports event contracts work much like traditional sports bets and should be regulated under state gaming laws.

The state also claimed that Kalshi allowed users between ages 18 and 20 to access the platform, even though New Mexico requires gamblers to be at least 21 years old.

New Mexico says that businesses offering products similar to sports betting should follow the same licensing and regulatory rules as sportsbooks operating in the state.

The CFTC responded quickly with its own lawsuit.

According to the agency, Kalshi operates as a federally approved exchange known as a Designated Contract Market. Because of that status, the CFTC argues that Kalshi falls under federal commodities laws, not state gaming laws.

The agency says Kalshi’s contracts qualify as financial products called swaps, which Congress gave the CFTC authority to regulate. As a result, the CFTC believes New Mexico’s actions conflict with federal law.

CFTC Chairman Mike Selig said the state is trying to apply gaming laws to a market that is already regulated by the federal government. The agency is asking the court to block New Mexico from taking further action against Kalshi and similar prediction market companies.

A National Pattern Takes Shape; Gensler Breaks Ranks With the CFTC

New Mexico is not the only state involved in this dispute.

The CFTC has filed similar lawsuits against Rhode Island, Wisconsin, Minnesota, New York, Arizona, Connecticut, and Illinois after those states challenged prediction market operators.

The growing number of cases highlights a major disagreement between state gaming regulators and the federal government. States argue that prediction markets look and operate like sportsbooks and should follow state gambling rules. The CFTC argues that these platforms are financial exchanges regulated under federal law.

The outcome could have a major effect on the U.S. gambling industry. Traditional sportsbooks spend large amounts of money on licenses, compliance programs, and taxes. Many state regulators believe prediction market companies have gained an unfair advantage by avoiding those requirements.

The CFTC maintains that it is simply enforcing existing federal law. But former CFTC and SEC Chairman Gary Gensler has publicly disagreed with the agency’s position.

Gensler filed a legal brief in Kalshi’s ongoing case against Ohio regulators. He argued that the Dodd-Frank Act, passed after the 2008 financial crisis, was designed to regulate financial risks, not sports betting.

According to Gensler, Congress never intended sports event contracts to be treated as swaps under federal law. He also argued that swaps are generally used to protect businesses from economic risks, while sports wagers serve a different purpose.

In a CNBC interview, Gensler said the key question is whether Congress intended to take regulatory power away from states and give it entirely to the CFTC. He believes the answer is no.

What’s Next

The lawsuit against New Mexico now joins several similar cases moving through federal courts.

Many legal observers are closely watching the Ohio case, where Gensler’s arguments could influence future rulings. If appellate courts reject the CFTC’s claims of exclusive authority, prediction market companies like Kalshi may eventually need licenses in each state where they operate.

For now, the legal battle continues to grow. The final outcome could shape the future of prediction markets and sports betting regulation across the United States for years to come.