Federal regulator CFTC launches lawsuit targeting Kentucky over prediction market dispute
Kentucky has become the ninth state facing legal action from the Commodity Futures Trading Commission as the federal agency intensifies its battle to control prediction market oversight.
On Tuesday, the Commodity Futures Trading Commission of the United States initiated legal proceedings against Kentucky, following the state's decision last week to take legal action against operators of prediction markets, charging them with running illegal gambling operations without proper licensing.
The federal court filing aims to prevent Kentucky from pursuing its legal actions against five separate prediction market platforms that were targeted on Wednesday of the previous week, with the CFTC requesting both declaratory and injunctive relief. The defendants include Governor Andrew Beshear of Kentucky, Attorney General Russell Coleman, and the Kentucky Horse Racing and Gaming Corporation, along with additional parties.
Kentucky is the latest state attempting to shut down federally-regulated event contracts. As I've consistently pledged, the CFTC is firmly committed to maintaining its exclusive jurisdiction over prediction markets, and today's lawsuit against Kentucky is yet another example of the Commission protecting its federal interests.
CFTC Chair Mike Selig
Since Chair Mike Selig assumed his position in December, the CFTC has intensified its campaign to preserve its regulatory authority over prediction markets. With Kentucky now added to the list, the CFTC has initiated legal proceedings against a total of nine states whose authorities have moved against prediction market operations.
The state of Kentucky filed suit against both Polymarket and Kalshi, as well as partners of Kalshi including Coinbase, Robinhood and Webull, asserting that they are "doing business without a Kentucky gaming license or following state regulations" and maintaining that their sports event contracts "fall squarely within the definition of 'sports wagering' under Kentucky law."
Since 2023, the Kentucky Horse Racing and Gaming Corporation has held regulatory authority over sports betting activities.
Kentucky's complaint also maintained that these platforms provide users with "few or no resources" for identifying gambling issues or accessing help, which violates requirements established under state law.
The CFTC's lawsuit countered by asserting that both Kalshi and Polymarket operate as designated contract markets under federal oversight, and that the event contracts they facilitate qualify as "swaps" according to federal commodities legislation.
The commission contended that Coinbase, Robinhood and Webull maintain registration as futures commission merchants with the CFTC, granting them authorization to provide event contracts when partnering with a designated contract market.
The federal regulator additionally challenged Kentucky's recently enacted legislation that established a 14.25% excise tax on transaction fees generated by prediction markets, characterizing it as a deliberate effort to render prediction market operations financially unfeasible within state borders.
This tax essentially makes it impossible for prediction markets to operate in Kentucky.
CFTC
This legal action follows by mere weeks the CFTC's comparable lawsuit against New Mexico, where the commission sought to prevent the state from enforcing its gaming regulations against Kalshi.
During May, President Donald Trump of the United States provided endorsement for the CFTC's position, declaring it "critically important" that the commission maintain regulatory authority over prediction markets.
Donald Trump Jr., the president's son, has made financial investments in and serves on the advisory board for Polymarket while also providing advisory services to Kalshi.