CFTC sues New York over prediction markets crackdown in high-stakes regulatory clash

A legal confrontation over the regulation of prediction markets has intensified after the Commodity Futures Trading Commission filed a lawsuit against the state of New York, seeking a court ruling to affirm its exclusive authority over the sector.

The filing, made Friday in the U.S. District Court for the Southern District of New York, asks for a declaratory judgment that oversight of prediction market exchanges falls solely under federal jurisdiction. These platforms allow users to trade on the outcomes of real-world events, including elections and sports.

The dispute follows legal action by Attorney General Letitia James against Coinbase and Gemini, in which the state alleges that their prediction market products violate New York gambling laws.

The case revolves around whether prediction markets constitute gambling or financial trading. Federal regulators argue that transactions occur between users rather than against a centralized operator, placing them within commodity trading frameworks. State authorities, including Governor Kathy Hochul and James, maintain that gambling regulations are necessary to protect consumers.

CFTC Chairman Michael Selig

“New York is the latest state to ignore federal law and decades of precedent by seeking to enforce state gambling laws against CFTC-registered exchanges,” said CFTC Chairman Michael Selig. “The CFTC will not allow overzealous state governments to undermine the agency’s longstanding authority over these markets.”

Regulatory conflict around prediction markets extends beyond New York. More than a dozen states have taken action against platforms such as Kalshi and Polymarket. The federal regulator has also filed lawsuits challenging state-level restrictions in Arizona, Illinois, and Connecticut, while a federal judge has blocked Arizona from enforcing similar measures.

Concerns over regulatory differences include age restrictions. New York law requires individuals to be at least 21 to participate in gambling, while some prediction platforms allow users aged 18 and above.

At the state legislative level, State Sen. Jeremy Cooney is advancing a proposal to bring prediction markets under financial regulatory oversight. He has cited concerns about large volumes of election-related trading and potential conflicts of interest linked to advisory roles held by Donald Trump Jr.

Separately, Gov. Hochul barred state employees from trading on non-public information following a federal case in Manhattan involving a U.S. soldier accused of using insider knowledge to place bets on the possible removal of Venezuelan President Nicolás Maduro. Selig said the case shows the federal government’s “zero tolerance” stance on fraud and insider trading.