Key facts
- The CFTC has sued New Mexico officials to prevent the state from regulating prediction markets.
- New Mexico had previously sued Kalshi, a prediction market platform, for operating without a license.
- The CFTC asserts exclusive federal jurisdiction over prediction market contracts, classifying them as 'swaps'.
- This is the eighth state lawsuit filed by the CFTC against state authorities taking action against prediction markets.
- Former CFTC Chair Gary Gensler has cast doubt on the regulator's claim of authority over sports event contracts.
The Commodity Futures Trading Commission (CFTC) has filed a federal lawsuit against New Mexico officials, including Governor Michelle Lujan Grisham and Attorney General Raúl Torrez, to block the state's efforts to regulate prediction markets. This action follows New Mexico's lawsuit against Kalshi on June 4, which alleged the company was operating an unlicensed sports betting platform through its sports event contracts and allowing users below the state's minimum gaming age of 21.
The CFTC contends that prediction market contracts are 'swaps' under federal commodities laws and fall under the agency's exclusive jurisdiction. The commission argues that New Mexico's attempt to apply state gaming laws to CFTC-registered Designated Contract Markets (DCMs) intrudes upon the federal regulatory scheme for commodity derivatives. This lawsuit marks the eighth instance where the CFTC has sued a state after its authorities took enforcement action against prediction market platforms, with previous actions taken against Rhode Island, Wisconsin, Minnesota, New York, Arizona, Connecticut, and Illinois.
CFTC Chairman Mike Selig stated that the commission has the expertise and responsibility to protect its exclusive jurisdiction over commodity derivatives and will continue to do so. The CFTC is seeking a court ruling that invalidates New Mexico state laws applicable to transactions on CFTC-regulated DCMs and a permanent injunction against the state.
Adding a layer of complexity, Gary Gensler, former chair of both the SEC and CFTC, has publicly questioned the CFTC's assertion of authority over sports event contracts. In an amicus brief filed in a separate case involving Kalshi and Ohio, Gensler argued that the Dodd-Frank Act does not encompass sports betting contracts and that such contracts do not align with the purpose of regulating swaps, which focus on hedging economic risk. Gensler stated that Congress did not grant such authority to the CFTC over state-regulated activities.