CFTC uses unprecedented authority to keep Kalshi operating

The Commodity Futures Trading Commission (CFTC) has invoked unprecedented emergency authority to allow prediction market Kalshi to continue operating, directly responding to a lawsuit filed by New York State Attorney General Letitia James. 

The CFTC has already sued nine states– Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin. The Commission has also filed amicus briefs in the U.S. Court of Appeals for the Sixth and Ninth Circuits and the Supreme Judicial Court of Massachusetts– in an ongoing turf war claiming exclusive jurisdiction over event contracts under the Commodity Exchange Act (CEA), over prediction markets asserting that event and prediction contracts are federally overseen swaps, making state-level gambling bans or enforcement unconstitutional and preempted. 

State attorneys general –a broad coalition of 44 state attorneys including New York State Attorney General Letitia James — counter that sports-related event contracts bypass local gaming compacts, consumer protections, and state-regulated sports betting frameworks.  For example, Nevada maintains a strict, court-enforced ban against Kalshi for offering unlicensed event contracts, centering on core disputes over state gaming control, federal preemption, and geofencing compliance.

The Nevada Gaming Control Board argued that Kalshi’s sports and election contracts constitute illegal, unlicensed sports pooling, while Kalshi claimed exclusive federal oversight under the Commodity Exchange Act. State judges backed local regulators, issuing a temporary restraining order followed by a preliminary injunction blocking Kalshi from offering sports, elections, and entertainment contracts without a state gaming license. Federal and appellate courts largely favored the state’s right to regulate local gambling, making Nevada one of the most aggressive states enforcing restrictions against prediction markets. 

Regulators and Kalshi entered agreements requiring the platform to implement strict geofencing to block Nevada-based users from accessing restricted event contracts. State authorities pushed for strict daily financial penalties and oversight audits if the platform failed to completely block local trade execution.

These cases remain active in federal courts with no definitive nationwide final outcome yet, though the CFTC has actively used emergency powers to block state enforcement.

The unparalleled emergency action by CFTC was triggered after KalshiEX, LLC notified the Commission of that New York Governor Kathy Hochul and Attorney General Letitia James filed a lawsuit against the prediction market Kalshi on July 31, 2026, accusing the platform of running an illegal, unlicensed gambling operation. The state seeks to halt its operations, force the forfeiture of profits, and demand heavy financial penalties of more than $36 billion in damages. 

State arguments and allegations include Kalshi lacks a permit from the New York State Gaming Commission. The platform allows 18-to-20-year-olds to wager, while New York law requires sports bettors to be at least 21. The company bypasses state taxes that normally fund public schools and addiction treatment. Event and sports contracts are pure games of chance rather than legitimate financial trades. 

The standoff centers on a fundamental disagreement regarding the legal definition of prediction market contracts with the CFTC maintaining that prediction platforms function as national derivatives exchanges offering federally regulated “swaps”. Under the Commodity Exchange Act (CEA), the agency claims exclusive jurisdiction to ensure a uniform national market and maintain market stability.

Kalshi’s Betting Contracts

Kalshi sells to anyone who is 18 years old and older in the United States and most other countries federally regulated binary Yes/No financial event contracts tied to real-world outcomes across economics, politics, sports, weather, and culture. Each contract settles at $1.00 if your prediction is correct and $0 if it is wrong. 

Economics & Finance: Inflation rates, GDP growth, interest rate decisions by the Federal Reserve, and unemployment numbers.

Politics & Elections: Congressional decisions, government policy outcomes, local or national election results, gruesome war outcomes with “Stew, a 35-year-old from Montana, wagering $10  on the odds that Iran’s Supreme Leader Ayatollah Ali Khamenei would be “out” by 1 March.

Sports: Pro and college league outcomes, game results, and player performance metrics (including NFL, NHL, MLB, and NBA).

Weather & Climate: Temperature benchmarks, hurricane landfalls, and seasonal climate patterns.

Culture & Novelty: Entertainment awards, box office performance,  auction/collectible markets (such as fine art and specialty assets) and entertainment event contracts hosting high-volume markets on specific high-profile celebrity weddings such as multi-million dollar trading activity around Taylor Swift and Travis Kelce’s events. 

The Commodity Exchange Act (CEA) regulates U.S. derivatives and commodities markets

The CEA requires the Commission to provide a uniform national market in derivatives transactions. As part of this obligation, the CFTC ensures public confidence in its markets by safeguarding market resilience and orderliness. The Commission is also tasked with providing competitive, fair, and efficient markets that protect the price discovery process of trading in the centralized derivatives markets. Major market disruptions hamper these efforts. CEA primarily gives the Commodity Futures Trading Commission (CFTC) authority over futures contracts, commodity options, swaps, and certain event contracts/prediction markets.

Futures Contracts: Are agreements to buy or sell a specific commodity or financial instrument at a set price on a specific future date. 

Commodity Options: Are contracts giving the buyer the right, but not the obligation, to buy or sell a futures contract or commodity at a set price within a set time. 

Swaps: Are Over-the-counter or cleared financial agreements to exchange cash flows or risk based on interest rates, currencies, or commodities (non-security-based swaps). 

Event Contracts: Binary options or prediction-style contracts where payouts depend on the occurrence or non-occurrence of specific real-world occurrences (such as economic indicators or weather outcomes) listed on designated exchanges which can be found at CFTC Industry Filings Registry . 

“New York intends to make event contract derivatives waste away under its iron curtain of state gaming laws before the courts get the chance to issue final rulings,” said Chairman Michael S. Selig. “Congress did not intend for derivatives exchanges to be regulated under a patchwork of state gaming laws. These are financial exchanges that offer financial instruments and operate across state lines. They match the bid from a resident of one state with the offer of a resident from another state and submit the trade to a clearinghouse that backstops the transactions of customers throughout the country. New York has no business regulating these interstate financial markets. The Commission is required by law to ensure order in these markets, and that is what we have done today.”

I wonder since when betting on the odds that Iran’s Supreme Leader Ayatollah Ali Khamenei would be “out” by 1 March or contracts on whether Taylor Swift will get married or not are financial contracts.  I suppose the courts will eventually decide.

About the Author:
Selva Ozelli Esq, CPA, is an international digital asset legal expert and author of Sustainably Investing in Digital Assets Globally and an award winning artist.  Her writings are translated into 45 languages and republished in over 200 global publications.  She is recognized as an expert media/TV commentator on global AI,  digital asset regulation, tax, and technology matters.