The Commodity Futures Trading Commission and the U.S. government have sued Utah and Attorney General Derek Brown, opening a new front in the fight over whether states can apply gambling laws to federally regulated prediction markets. The complaint, filed Tuesday in federal district court, asks the court to stop Utah from enforcing its gambling restrictions against event contracts traded on designated contract markets.
The case follows Utah’s own lawsuit against Kalshi, its affiliates, and two Susquehanna entities. In that earlier action, the state alleged the companies were operating an illegal gambling enterprise and said Kalshi had collected tens of millions of dollars in fees from Utah users while state residents incurred millions in losses.
Federal government asserts exclusive authority
At the center of the new lawsuit is the federal government’s argument that the Commodity Exchange Act places oversight of these event contracts solely with the CFTC. According to the complaint, contracts traded on designated contract markets fall under a federal framework that Utah cannot override through state gambling enforcement.
The filing presents three preemption theories. It argues that federal law expressly gives the CFTC authority in this area, that the federal regulatory system is comprehensive enough to occupy the field, and that Utah’s restrictions conflict with a national regime for supervising derivatives markets.
Utah’s case against Kalshi
Utah sued Kalshi on Oct. 20, along with affiliates and two Susquehanna-related entities. Attorney General Derek Brown’s complaint alleged the defendants offered unlawful gambling products tied to sports, elections, politics, entertainment, and other real-world outcomes.
In that state case, Utah estimated that Kalshi collected between $30.6 million and $61.2 million in fees from accounts in the state through mid-October. The state also alleged that Utah residents sustained about $5.5 million in trading losses.
Prior ruling weighs on the dispute
The federal government’s challenge arrives after a setback for Kalshi in an earlier court fight. A federal judge previously ruled that federal commodities law did not block Utah from enforcing its gambling prohibitions against Kalshi’s sports-related contracts.
Kalshi appealed that decision, but the U.S. Court of Appeals for the 10th Circuit declined to grant an injunction pending appeal. That procedural loss leaves the company and now the CFTC trying to persuade the courts that federal oversight should still displace state action in this area.
What the lawsuit could determine next
This is described as the CFTC’s 10th lawsuit against a state over the issue, underscoring how broadly the agency views the stakes in the clash between state gambling rules and federal derivatives regulation.
A ruling for the federal government could strengthen the argument that federally regulated prediction markets are governed primarily by Washington rather than by a patchwork of state prohibitions. For now, the confirmed next step is the court’s consideration of whether Utah can continue enforcing its gambling laws against Kalshi-linked event contracts while the broader jurisdictional fight proceeds.
Source: news.bitcoin.com