The Commodity Futures Trading Commission (CFTC) escalated its legal fight over prediction markets on Thursday after it sued Rhode Island in federal court. The regulator moved to block the state from enforcing gambling laws against federally registered platforms. The dispute now raises a key question over who controls prediction markets in the United States, federal regulators or state authorities.
Rhode Island recently targeted prediction platforms Kalshi and Polymarket. State Attorney General Peter Neronha said the companies breached local sports-betting rules through event contracts linked to sports outcomes. However, the CFTC argues that federal law gives it exclusive authority over these markets under the Commodity Exchange Act. Consequently, the case adds fresh pressure to an already expanding national dispute over prediction-market oversight.
CFTC pushes back against state actions
The CFTC stepped into federal court in Rhode Island after the state increased legal pressure on prediction platforms. Rhode Island also filed a parallel state case seeking civil penalties against a CFTC-registered market operator. The move escalates a growing clash over who controls prediction markets in the United States.
Earlier this month, in a public statement, Rhode Island Attorney General Peter Neronha demanded that prediction markets “stand down, abide by our state laws, and disgorge their profits.” The CFTC, however, rejected the state’s position and defended its authority under the Commodity Exchange Act.
CFTC Chairman Michael S. Selig said registered exchanges face “an onslaught of lawsuits” aimed at restricting access to event contracts. He argued that such actions undermine the agency’s exclusive jurisdiction over prediction markets. Moreover, Selig said event contracts allow firms to hedge risk and manage exposure. He also added that prediction markets provide useful information about future events for the public and investors.
Legal battle expands across states
The dispute in Rhode Island marks the seventh state-level case involving the CFTC and prediction markets. Additionally, more than a dozen states now take part in litigation tied to event-contract platforms. Minnesota has already moved further and decided to ban prediction markets outright.
Besides Rhode Island, several states including Arizona, Connecticut, Illinois, New York, and Minnesota have challenged the CFTC’s authority. However, the regulator has focused most of its legal actions on states led by Democratic attorneys general, adding a political layer to the dispute.
President Donald Trump also weighed in this week. In a social media post on Tuesday, he said it was “critically important that the CFTC’s exclusive authority over Prediction Markets is maintained, and that they will thrive.” As a result, the debate now extends beyond courts and into the political arena.
Congress and courts increase pressure
Prediction platforms also face rising scrutiny in Congress. Last week, the House Oversight Committee questioned Kalshi and Polymarket over safeguards against insider trading. Lawmakers asked how the companies detect suspicious activity linked to political and sports contracts.
As a result, concerns over market manipulation continue to grow in Washington. Regulators and lawmakers now focus more closely on how these platforms manage trading risks and user behavior.
Federal courts, however, have recently leaned in favor of the CFTC. In April, a federal appeals court upheld an injunction against New Jersey. The ruling suggested that federal law likely overrides state gambling enforcement against regulated prediction-market operators.
The Rhode Island case now carries wider implications for the industry. Exchanges and trading firms are watching closely to see whether courts continue to support federal authority. The outcome could shape how digital event-contract platforms operate across the United States.
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