Minnesota prohibits prediction markets, promptly gets sued by Trump admin

The Commodity Exchange Act, a US law, gives the CFTC exclusive jurisdiction over designated contract markets (DCMs). The CFTC argues that this preempts state laws regulating prediction markets such as Kalshi and Polymarket, which are registered with the CFTC as DCMs. The CFTC won a court ruling in April that prevented New Jersey from regulating prediction markets under laws that prohibit betting on college sports and require licenses to offer other types of sports wagers. In that case, the US Court of Appeals for the 3rd Circuit ruled that “Kalshi’s sports-related event contracts are swaps traded on a CFTC-licensed DCM, so the CFTC has exclusive jurisdiction.” The CFTC lawsuit against Minnesota offers another chance for a judge to decide whether event contracts are swaps. The CFTC complaint argues that the contracts are a type of swap under the Commodity Exchange Act, which defines them as “any agreement, contract, or transaction” that, among other things, “is dependent on the occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence.” US senators recently voted to ban themselves from making bets on prediction markets. Some congressional candidates had been caught betting on their own campaigns, and a US Army soldier was recently arrested for insider trading after being accused of making Polymarket wagers on the timing of the military’s capture of Venezuelan President Nicolás Maduro. Sen. Alex Padilla (D-Calif.) has called for “legislation to rein in Trump administration officials who may be profiting off insider knowledge, including military operations.” While the CFTC is seeking public comment on how it should regulate prediction markets, the Trump administration isn’t likely to impose a major crackdown on them. Polymarket and Kalshi both have Donald Trump Jr. as an advisor, and a Trump Jr.-backed venture capital firm invested in Polymarket. Minnesota Rep. Emma Greenman, a Democrat who authored the state’s prediction market ban, said the bill “passed with bipartisan support in the House and Senate, showing broad support for protecting our young people, our communities, and our public decision-making from these shadowy prediction gambling markets. It is critical we act this year to address this explosion of gambling on almost anything and rein in these Big Tech billionaires who skirt the law to circumvent our state authority and hurt our children just to line their own pockets.”