CFTC sues Arkansas to block state effort to halt trading in event contracts

The Commodity Futures Trading Commission said Friday that it has sued Arkansas to stop the state from trying to shut down trading in event contracts on a federally regulated exchange, escalating a widening fight over whether states can police prediction markets that federal regulators say fall under their authority.

In a Nov. 13 press release, the CFTC said it filed the case to block Arkansas from halting trading in event contracts and from imposing civil penalties on CFTC-registered exchanges. According to the agency’s announcement and contemporaneous docket reporting, the case was filed in the U.S. District Court for the Eastern District of Arkansas, Central Division, by the United States and the CFTC against the State of Arkansas and Attorney General Tim Griffin in his official capacity. The reported case number is 4:26-cv-01255-BSM.

The federal suit follows an Arkansas enforcement action filed by Griffin on Nov. 4 against KalshiEX LLC and Kalshi Inc. in Independence County Circuit Court. In a press release, Griffin said the state’s case seeks injunctions, restitution, penalties, taxes and other relief. The reported docket number is 32CV-26-717.

Arkansas alleges Kalshi offered event, sports, election and entertainment contracts to Arkansas residents, allowed accounts by users ages 18 to 20, and operated without state gambling licenses. Those are allegations in the state’s complaint, not established facts.

At the center of the dispute is whether those contracts are regulated derivatives products or illegal gambling under state law. The CFTC, the federal agency that oversees U.S. derivatives markets, says the Commodity Exchange Act gives it exclusive authority over trading on federally designated exchanges, meaning Arkansas cannot use state gambling law to stop those contracts. Arkansas, through Griffin’s lawsuit, contends the offerings violate state law.

“The CFTC will continue to defend its sole jurisdiction over these federally regulated markets…,” CFTC Chairman Michael S. Selig said in the agency’s release.

Griffin framed the case differently in Arkansas’s Nov. 4 announcement, saying, “Arkansas law is concerned with substance, not semantics.”

Kalshi is central to the jurisdictional clash because KalshiEX LLC operates a market designated by the CFTC as a contract market on Nov. 4, 2020. That designation matters because the commission says trading on such a venue is governed by federal commodities law, not a patchwork of state gambling rules.

The key statute is the Commodity Exchange Act, the federal law governing futures and related derivatives markets. As described in the CFTC’s release and reporting on the complaint, the law gives the agency “exclusive jurisdiction” over certain swaps and futures traded on designated contract markets, which is the basis for the federal government’s argument that Arkansas’s enforcement effort is preempted.

The case is the latest flashpoint in a broader multistate legal fight over event contracts, sometimes called prediction-market contracts, that let traders take positions on the outcome of future events. States have argued such products can amount to unlawful gambling, while federal regulators and the exchanges involved have argued they are lawful derivatives when listed on CFTC-regulated venues.

The CFTC said Arkansas is the 11th state it has sued in this broader dispute. The new case underscores how the battle over prediction markets has become a direct test of whether states can apply their gambling and consumer-protection laws to contracts traded on federally regulated exchanges.