Share 
In a major escalation of the battle over the future of decentralized finance and event wagering, the Commodity Futures Trading Commission (CFTC) and the U.S. Department of Justice (DOJ) have filed joint lawsuits against Arizona, Connecticut, and Illinois.
The legal action seeks to block what the federal government calls an “unlawful” attempt by state regulators to seize oversight of prediction markets.
Constitutional conflict over “gambling”
The lawsuits, filed April 2, argue that the Commodity Exchange Act grants the CFTC exclusive jurisdiction over these markets, which it classifies as legitimate derivative “swaps” rather than illegal gambling. The federal government contends that state-level enforcement violates the Supremacy Clause of the U.S. Constitution, which allows federal law to preempt state regulations.
The legal push follows a significant escalation in Arizona, where Attorney General Kris Mayes recently filed criminal charges against the prediction platform Kalshi, alleging the company facilitated illegal election betting. In response, a federal judge last week issued a temporary restraining order at the CFTC’s request, blocking Arizona from pursuing those criminal charges.
Chairman Selig defends federal authority
CFTC Chairman Michael S. Selig, an appointee of President Donald Trump, has taken a combative posture against state interference.
“The CFTC will continue to safeguard its exclusive regulatory authority and defend market participants against overzealous state regulators,” Selig said in a CFTC press release.
“Arizona’s decision to weaponize state criminal law against companies that comply with federal law sets a dangerous precedent. Congress specifically rejected a fragmented patchwork of state regulations because it results in poorer consumer protection and increased risk of fraud.”
The federal lawsuits also target Connecticut and Illinois, both of which recently issued cease-and-desist orders to platforms including Kalshi, Polymarket, and Crypto.com.
State officials, such as Illinois Governor J.B. Pritzker, have pushed back, accusing the Trump administration of “carrying water” for lucrative industry players while stripping states of their traditional power to regulate sports betting and gaming.
A new regulatory framework
In a proactive move to solidify federal oversight, the CFTC issued an Advance Notice of Proposed Rulemaking (ANPR)last month. The ANPR aims to establish a formal federal framework for the industry, replacing older staff advisories that Chairman Selig recently withdrew.
The current administration maintains a close relationship with the industry; Donald Trump Jr. serves as an advisor to Polymarket, and the administration has prioritized “onshoring” derivative products.
Outlook for federal preemption
While states argue they are protecting consumers from unregulated gambling, the CFTC maintains that its federal “north star” of market integrity and anti-fraud protections must remain the sole standard for the burgeoning industry.
