CFTC Strikes Back After Wisconsin Takes Action Against Prediction Markets

Wisconsin just called prediction markets “illegal gambling,” becoming the latest state to take a stance against the rapidly growing industry. In response, the Commodity Futures Trading Commission (CFTC) has initiated a lawsuit against the state, arguing that it is overstepping its regulatory authority.

The CFTC Would Sue Anyone Interfering with Federal Law

Just after Wisconsin declared prediction market platforms to be illegal gambling and took enforcement action against the likes of Kalshi, Robinhood and Polymarket, the CFTC filed a federal lawsuit against the state. Filed in the US District Court for the Eastern District of Wisconsin, the lawsuit seeks declaratory and injunctive relief to block Wisconsin’s attempt to regulate prediction markets.

This comes after the CFTC previously criticized states seeking to rein in prediction markets. For context, prediction markets are, according to the CFTC, derivatives that allow traders to speculate on the outcomes of certain events, ranging from sports to politics. As a result, they are regulated in the same manner as other trading platforms.

However, prediction markets’ similarities to gaming have prompted widespread pushback against this novel vertical. Multiple states have since made attempts to regulate the sector, only to be met with the CFTC’s ire. These included Arizona, Illinois, Connecticut, and, most recently, New York.

Washington could become the next target of the CFTC’s legal action due to its recent action against prediction markets.

The CFTC has insisted on its exclusive rights to regulate the derivatives markets and has previously accused state regulators of overstepping their authority. CFTC chair Michael Selig warned Wisconsin that the CFTC would sue anyone who tries to interfere with the operation of federal law.

Prediction Markets Divide America

The seemingly murky legality of prediction markets has been a point of contention for months. While the CFTC has been categorizing the activity as the trading of event contracts, critics have claimed that it is very similar to betting, without offering the same safeguards that betting platforms do.

At the same time, the CFTC license allows platforms to operate nationwide, sparing them the need to navigate the complex web of state sports betting regulations. In addition to pointing out that this creates an uneven playing field, some have noted that this allows prediction market platforms to tap into states where betting is not legal.

Additional concerns related to prediction markets have included some products’ seeming predisposition to being exploited for insider trading.