KEY TAKEAWAYS
- The CFTC and DOJ sued Utah on Monday to block the state’s gambling enforcement against prediction markets.
- The suit follows Utah’s Oct. 20 state court lawsuit against Kalshi and two Susquehanna trading firms.
- Utah is the 10th state sued by the CFTC as three Supreme Court petitions wait for action.
The federal government took another state to court over prediction markets, claiming it stands to suffer “irreparable injury” from Utah’s attempts to shut down event contracts.
The U.S. Department of Justice and the Commodity Futures Trading Commission (CFTC) sued Utah Attorney General Derek Brown in federal court on Monday, seeking to block the state from enforcing its gambling laws against CFTC-regulated exchanges.
The lawsuit follows Brown’s civil suit against Kalshi and several other parties last week. Utah launched that court offensive after a federal judge rejected Kalshi’s federal-jurisdiction argument in August and dismissed a lawsuit the company filed in February.
The federal government’s 33-page complaint claims Utah’s push to shut Kalshi out of the state causes the federal government an injury that “is irreparable and requires preliminary and permanent injunctive relief.”
What does US government want from Utah court?
The CFTC wrote that “Supremacy Clause violations are always irreparable,” and that the damage to federal “sovereign interests and regulatory jurisdiction could not be undone after final judgment.”
The agency wants a declaration that Utah’s gambling statutes, its ban on election betting, and its public nuisance law are preempted as applied to CFTC-regulated designated contract markets.
It also seeks preliminary and permanent injunctions that would bar Utah from investigating or enforcing those laws against CFTC-regulated entities “and their affiliates and partners.”
CFTC lawsuit answers Utah’s case against Kalshi
The federal suit came six days after Brown filed his state court suit against Kalshi.
Utah’s complaint in Third District Court in Salt Lake County named five Kalshi entities and two Susquehanna trading firms, Susquehanna International Group and Susquehanna Government Products. It accused all defendants of running an illegal gambling operation and declared Kalshi’s activity a public nuisance.
Utah asked the state court to block sports, elections, politics, culture, and mentions contracts for anyone in Utah, enforced through a court-approved geolocation provider. The state also wants restitution and disgorgement, and it estimates Kalshi collected $30.6m to $61.2m in fees from Utah accounts.
The CFTC complaint quotes Utah’s filing at length, then argues the state’s approach “threatens to wipe out the operation of CFTC-regulated exchanges within the State.” If states can regulate event contracts, the agency argues, exchanges would face “the prospect of 50 regulators across the country.”
The CFTC also argued that forcing exchanges to cut off Utah residents would violate a federal rule requiring “impartial access” for eligible participants nationwide. That complaint reaches back more than a century.
“Utah’s attempt to shut down derivatives trading is not new,” the CFTC wrote, pointing to 19th-century states that banned futures trading as gambling. It quotes Justice Oliver Wendell Holmes‘ 1905 opinion that “the natural evolutions of a complex society are to be touched only with a very cautious hand.”
Utah already won first round in federal court
Utah enters the fight with a federal win in hand. Kalshi sued Gov. Spencer Cox and Brown in federal court in February, and in March Cox signed House Bill 243, which treats proposition bets as gambling.
On Aug. 4, U.S. District Judge Robert Shelby granted Utah summary judgment and held that the Commodity Exchange Act (CEA) does not override the state’s gambling laws. Kalshi appealed, and the Tenth Circuit Court of Appeals denied its request for an injunction pending appeal on Sept. 8. That appeal remains pending.
CFTC lawsuit leans on prediction markets’ court wins
The CFTC complaint never mentions Shelby’s ruling or the Tenth Circuit order. Instead, it leans on wins for the industry elsewhere, including the Third Circuit‘s April ruling for Kalshi in New Jersey and preliminary injunctions in Illinois and Minnesota.
It also cites the Ninth Circuit‘s August decision in Nevada for the point that the CEA expressly preempts state laws regulating swaps traded on a federally regulated exchange. That same panel ruled against Kalshi, finding its sports contracts likely are not swaps at all.
The new case sits in the same federal district that already ruled for Utah, and any appeal would go to the Tenth Circuit, which still holds Kalshi’s appeal.
Kalshi stood by its federal argument after Utah filed its suit.
The CFTC sued 10 states over prediction markets
Utah is the 10th state the CFTC sued over prediction markets since April, after:
- Arizona
- Connecticut
- Illinois
- Kentucky
- Minnesota
- New Mexico
- New York
- Rhode Island
- Wisconsin
Federal judges granted preliminary injunctions for the federal government in Arizona, Illinois, and Minnesota. In Wisconsin, U.S. District Judge William Griesbach denied the CFTC’s request in July, ruling the agency would not suffer “irreparable harm” from state gaming laws.
Supreme Court fight awaits
The Utah dispute adds to a question already waiting at the U.S. Supreme Court after several circuit court decisions:
- The Third Circuit ruled 2-1 for Kalshi in April
- The Ninth Circuit ruled against Kalshi on Aug. 28
- The Sixth Circuit followed on Sept. 25 with a 3-0 ruling for Ohio and Tennessee
New Jersey petitioned the Supreme Court on Sept. 2 in Flaherty v. KalshiEX. Robinhood and Crypto.com filed their own petitions from the Nevada decisions, while Kalshi asked the full Ninth Circuit to rehear its case. Ohio, 38 other states, and the District of Columbia filed a brief backing New Jersey, as did the NFL, the American Gaming Association, and 145 tribal governments and organizations.
Kalshi’s response to New Jersey is due Nov. 9.
The CFTC is also trying to shape the answer through rulemaking. On Oct. 19, it issued an interim final rule excluding state-licensed sportsbook and casino wagers from the definition of swap, and it proposed a rule that would expressly classify sports, politics, culture and weather event contracts as swaps. The Utah complaint says that proposal, if finalized, “would provide an independent basis” to treat the contracts Utah targets as swaps.
