Federal Government Sues Three States Over Prediction Market Regulation

Lawsuits challenge state efforts to regulate companies like Kalshi and Polymarket.

Apr. 2, 2026 at 11:35pm

Got story updates? Submit your updates here. ›

A vibrant, abstract painting featuring overlapping, fractured geometric shapes in shades of blue, green, and orange, conceptually representing the complex and rapidly evolving world of online prediction markets.The legal battle over the regulation of online prediction markets could have far-reaching implications for the future of financial technology and consumer protection.Washington Today

The federal government has filed lawsuits against Connecticut, Arizona, and Illinois, challenging the states' attempts to regulate online prediction market operators such as Kalshi and Polymarket. The Commodity Futures Trading Commission claims it, not the states, has regulatory authority over these companies, arguing that a 'fragmented patchwork of state regulations' leads to increased fraud risk and poor consumer protection.

Why it matters

This legal battle over the regulation of prediction markets could have broader implications for the future of online gambling and sports betting, as states and the federal government clash over their respective jurisdictions.

The details

All three states have issued cease and desist orders to prediction market companies, accusing them of engaging in illegal online gambling under state law. Arizona has also filed criminal charges against Kalshi for allegedly violating state gambling laws and a law prohibiting betting on elections. The CFTC contends it, not the states, has the authority to regulate these markets.

  • The federal government filed the lawsuits on April 2, 2026.
  • Last month, the Trump administration voiced support for Kalshi and Polymarket in a related legal battle.

The players

Commodity Futures Trading Commission (CFTC)

The federal agency that regulates commodity futures and options markets, including prediction markets.

Michael S. Selig

The chairman of the CFTC.

William Tong

The attorney general of Connecticut, who accused the Trump administration of 'recycling industry arguments' in support of the prediction market companies.

Kalshi

An online prediction market company that has been targeted by state regulators.

Polymarket

Another online prediction market company involved in the legal battle with state regulators.

Got photos? Submit your photos here. ›

What they’re saying

“'The CFTC will continue to safeguard its exclusive regulatory authority over these markets and defend market participants against overzealous state regulators.'”

— Michael S. Selig, CFTC Chairman

“'These contracts are plainly unlicensed illegal gambling under time-worn state law, and we will aggressively defend Connecticut's commonsense consumer protection laws.'”

— William Tong, Connecticut Attorney General

What’s next

The lawsuits filed by the federal government will likely lead to a legal battle over the regulation of prediction markets, with implications for the future of online gambling and sports betting.

The takeaway

This case highlights the ongoing tension between state and federal authority over emerging financial technologies like prediction markets, with both sides arguing their regulatory frameworks are necessary to protect consumers.