The CFTC Countersued New York to Block State Prediction Market Enforcement — This Is Now a Full Federal vs. State War

The regulatory war over prediction markets just escalated into a full-scale federal versus state confrontation. On April 24, 2026, the Commodity Futures Trading Commission and the U.S. Department of Justice jointly filed a lawsuit in the U.S. District Court for the Southern District of New York seeking to block New York State from enforcing its gambling laws against federally regulated prediction market platforms. On the same day, the CFTC filed an amicus brief with the Massachusetts Supreme Judicial Court in a parallel case, sending an unmistakable message: the federal government intends to hold the line on its exclusive jurisdiction over prediction markets, and it is willing to litigate that position in every state that pushes back.

What the CFTC Filed — and Why

The case, United States v. New York, S.D.N.Y., No. 1:26-cv-03404, names New York State, Governor Kathy Hochul, Attorney General Letitia James, the state gaming commission, and several senior state officials as defendants. The complaint centers on two distinct New York enforcement actions: a cease-and-desist letter sent to KalshiEx LLC in October 2025 over sports wagering on its platform, and civil lawsuits filed by the attorney general against Coinbase Financial Markets Inc. and Gemini Titan LLC, which accused both platforms of operating illegal gambling activity without a state license.

The CFTC argues that New York’s enforcement efforts are flatly preempted by federal law. Under the Commodity Exchange Act, Congress established a national regulatory framework for derivatives markets, including event contracts — and granted the CFTC exclusive authority to oversee them. The CFTC’s complaint asks for a declaratory judgment affirming that federal law preempts any conflicting state statutes, along with a permanent injunction blocking New York from investigating or enforcing those provisions against CFTC-registered exchanges.

“CFTC-registered exchanges have faced an onslaught of state lawsuits seeking to limit Americans’ access to event contracts and undermine the CFTC’s sole regulatory jurisdiction over prediction markets,” said CFTC Chairman Michael S. Selig in a statement accompanying the filing. “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. As I’ve said before, the CFTC will not allow overzealous state governments to undermine the agency’s longstanding authority over these markets.”

The Massachusetts Front — Filed the Same Day

The New York lawsuit was not the only federal action on April 24. The CFTC simultaneously filed an amicus curiae brief with the Massachusetts Supreme Judicial Court in Commonwealth of Massachusetts v. KalshiEx LLC, No. SJC-13906. In that proceeding, Massachusetts has been pursuing its own effort to limit Kalshi’s sports event contracts under state gambling law.

The CFTC’s Massachusetts brief traces the legislative history of the Commodity Exchange Act and argues that Congress intentionally created a federal regulatory framework that displaces state-level gambling authority when applied to CFTC-regulated markets. The agency warned that allowing state gambling laws to override federal derivatives oversight would “reintroduce fragmented oversight across jurisdictions” and undo decades of regulatory structure built by Congress.

Chairman Selig used the Massachusetts filing to issue his most direct warning yet to states challenging prediction markets. “Congress has entrusted the CFTC with the sole authority to regulate commodity derivatives markets, including prediction markets,” Selig said. “To any state that seeks to nullify federal law and seize authority over these markets, I say again: we will see you in court.” He echoed the statement directly on X, posting: “Massachusetts, we will see you in court.”

New York’s Position and the State Coalition

New York officials have maintained that state law gives them authority to restrict or prohibit certain contract markets from operating within state borders, regardless of federal registration. The state’s enforcement posture rests on the argument that prediction market products — particularly sports event contracts — function as gambling under New York law, and that federal financial regulation does not immunize platforms from state consumer protection and gaming statutes.

New York is not alone in that view. A coalition of 37 states and Washington, D.C. filed their own amicus brief in the Massachusetts case, supporting the state’s position that federal law does not clearly override established state gambling authority. Those states contend that prediction market platforms are effectively offering sports betting without complying with state licensing requirements, age restriction enforcement, fraud prevention rules, or problem gambling safeguards that state-regulated sportsbooks must meet.

Kalshi, for its part, argues that its products are swaps governed by federal law, a position that has gained traction in federal courts. A Third Circuit Court ruling earlier in April affirmed that the CFTC has regulatory authority over prediction market products, and a federal court in Arizona issued a temporary restraining order blocking that state from criminally prosecuting Kalshi while the jurisdictional dispute works through the courts.

A Pattern of Federal Action Across Multiple States

The New York suit is the fourth such federal action in a matter of weeks. The CFTC and DOJ previously filed similar lawsuits against Arizona, Connecticut, and Illinois — all states that had sent cease-and-desist letters or filed their own enforcement actions against prediction market platforms including Kalshi and Crypto.com promo code. The Arizona case produced the first concrete federal court relief for the industry, with a temporary restraining order pausing state enforcement while litigation proceeds.

Despite predictions from some observers that the CFTC would limit its litigation push, Chairman Selig has been consistent. Speaking at the Digital Assets and Emerging Tech Policy Summit in Nashville earlier in April, he made clear that additional states should not assume they are safe. “I wouldn’t say, just because these are the first states, that they will be the last,” Selig said at the time. With New York now in the crosshairs, that warning has proven credible.

What This Means for Prediction Market Users and Sports Bettors

For anyone following prediction markets legal questions — or anyone who trades on platforms like Kalshi, Polymarket, or Coinbase’s prediction products — the implications of this legal battle are significant. If the CFTC prevails, federally registered prediction markets would be effectively shielded from state gambling enforcement across the entire country, operating under a single federal framework regardless of which state a user happens to be in. That is a fundamentally different regulatory model than state-by-state sports betting, where legal access and available platforms vary dramatically depending on where you live.

If the states prevail, the opposite scenario unfolds: platforms could face a patchwork of conflicting requirements that may make it financially and legally impossible to operate uniformly nationwide. Some states could ban event contracts on sports outright; others might require separate licensing. The result would look much more like the existing prediction markets vs. sports betting regulatory divide that currently exists — where sportsbooks operate state by state and prediction markets attempt to operate nationally.

Legal analysts have noted that these cases could eventually reach the Supreme Court if the circuit courts produce conflicting rulings. Congress could also step in to codify whether prediction market event contracts fall under CFTC jurisdiction or whether states retain concurrent authority — but no legislation has moved forward yet. Until one of those outcomes materializes, the courtroom will remain the primary battleground, and the CFTC under Chairman Selig has shown no signs of standing down.