Arkansas becomes 11th state sued by CFTC in prediction market fight

Regulators seek to stop enforcement against Kalshi and other federally regulated exchanges after AG Tim Griffin labeled the platform unlicensed gambling.(CN) — The Commodity Futures Trading Commission filed a federal lawsuit Thursday against the state of Arkansas and Attorney General Tim Griffin, seeking to halt the state’s enforcement action against prediction market operator Kalshi and to bar similar actions against other federally regulated exchanges.The 34-page complaint, filed in the Eastern District of Arkansas, argues that the Commodity Exchange Act preempts Arkansas law by granting the CFTC exclusive jurisdiction over swaps and derivatives traded on federally regulated platforms.The filing responds to a Nov. 4 lawsuit Griffin brought against Kalshi in Independence County Circuit Court under the Arkansas Deceptive Trade Practices Act. Griffin claims Kalshi operates an unregulated gambling platform allowing wagers on sports, elections, entertainment and other outcomes without state licenses, oversight or taxes. He has called it a “pocket-sized bookie.”“In Arkansas, gambling is regulated to protect consumers,” AG spokesman Jeff LeMaster explained in an email Friday. “Instead of obtaining the licenses, submitting to the oversight, complying with the restrictions and paying the taxes required of lawful gambling operators in Arkansas, Kalshi opened its platforms to Arkansas consumers, including individuals as young as 18 years old, encouraged them to wager real money on sporting and entertainment events, and profited from those wagers. We disagree with the CFTC’s assertion that federal regulation of prediction markets preempts Arkansas’s laws concerning gambling.”The federal complaint argues that the contracts qualify as swaps under the Commodity Exchange Act, which covers payments tied to events with financial or commercial consequences. Kalshi, designated a contract market by the CFTC in November 2020, lists contracts through federal self-certification.The government argues Arkansas’s enforcement “intrude[s] on the exclusive federal scheme” governing derivatives markets and that applying state gambling laws would undermine uniform regulation, create market uncertainty and irreparably harm federal sovereign interests.“As prediction markets continue to prove their value in being useful for risk management and providing the public with valuable information about the future, Arkansas seeks to shut down event contracts ranging from sports and politics to other important world events,” said CFTC Chairman Michael S. Selig in a statement. “The CFTC will continue to defend its sole jurisdiction over these federally regulated markets as granted by Congress under the Commodity Exchange Act, and the Commission will not let state interference thwart its regulatory efforts and destroy federally regulated markets.”Arkansas is the 11th state the CFTC has sued in similar preemption cases. The agency has also filed amicus briefs in appellate and state supreme courts, with preliminary injunctions favoring its position issued in Arizona, Illinois and Minnesota.The dispute reflects a broader clash over prediction markets. The CFTC has sought to distinguish event contracts from traditional sportsbooks, signed market integrity agreements with professional sports leagues and pursued enforcement actions involving suspected insider trading.Critics, including state attorneys general and gaming interests, argue that sports-related contracts amount to sports betting that bypasses state licensing, age restrictions, consumer protections and taxes.Kalshi did not respond to a request for comment.The federal complaint was assigned to District Judge Brian S. Miller, a George W. Bush appointee. No immediate ruling on injunctive relief has been issued.Subscribe to our free newslettersOur weekly newsletter Closing Arguments offers the latest about ongoing trials, major litigation and rulings in courthouses around the U.S. and the world, while the monthly Under the Lights dishes the legal dirt from Hollywood, sports, Big Tech and the arts.Additional Reads