17 Senate Democrats Move to Block Federal Funds From CFTC's State Prediction Market Lawsuits
Seventeen Democratic senators sent a letter to the Senate Appropriations Subcommittee on June 24, asking Congress to strip CFTC funding for its lawsuits against states regulating prediction markets. Here's what it means and what happens next.
A Senate Funding Fight Could Reshape Who Regulates Prediction Markets
Seventeen Democratic U.S. senators sent a formal letter to a key Senate appropriations panel on June 24, 2026, calling on Congress to bar the Commodity Futures Trading Commission (CFTC) from using federal money to pursue lawsuits against states that have moved to regulate or restrict prediction market platforms like Kalshi and Polymarket US.
The letter, addressed to Chair Bill Hagerty (R-TN) and Ranking Member Jack Reed (D-RI) of the Senate Appropriations Subcommittee on Financial Services and General Government, asks that language be added to the Fiscal Year 2027 federal spending bill prohibiting the CFTC from using appropriated funds to block state and tribal enforcement of gambling laws against prediction market operators.
The move represents one of the most direct congressional challenges yet to the CFTC's campaign to assert exclusive federal jurisdiction over the rapidly growing prediction market sector — a campaign that has already produced lawsuits against nine states.
The Letter: "Campaign of Litigation and Intimidation"
The letter was led by Senators Richard Blumenthal (D-CT) and Jeff Merkley (D-OR), joined by 15 Democratic colleagues: Maria Cantwell (D-WA), Catherine Cortez Masto (D-NV), Dick Durbin (D-IL), Martin Heinrich (D-NM), John Hickenlooper (D-CO), Mazie Hirono (D-HI), Ben Ray Luján (D-NM), Chris Murphy (D-CT), Alex Padilla (D-CA), Jacky Rosen (D-NV), Brian Schatz (D-HI), Adam Schiff (D-CA), Tina Smith (D-MN), Elizabeth Warren (D-MA), and Sheldon Whitehouse (D-RI).
"Recent lawsuits filed by the CFTC against states regulating online prediction markets will only fuel a gambling public health crisis and interfere with states' and Tribes' longstanding prerogative to regulate or even restrict gambling," the senators wrote.
The senators argued that prediction markets have strayed far from the original purpose of the financial instruments they claim to be.
"Serving to hedge against financial risks, event contracts were largely limited to the agricultural sector and economic matters," the letter states. "Prediction markets, however, have distorted this purpose and infiltrated the world of sports, politics, and even foreign affairs."
The senators' sharpest language: "Through engaging in this campaign of litigation and intimidation, the CFTC risks becoming an instrument and enabler of online prediction markets' efforts to bypass states' consumer protections and oversight, creating a race-to-the-bottom in gambling."
Senator Blumenthal has been publicly critical on this front, previously characterizing the CFTC as "nothing more than a tool" for prediction market operators seeking to avoid state oversight.
What They're Asking For: An Appropriations Rider
The senators are not proposing new legislation defining prediction markets or assigning jurisdiction. Instead, they're pursuing a more targeted mechanism: a funding restriction attached to the FY2027 federal spending bill.
Appropriation riders are provisions embedded in annual spending bills that restrict how agencies can use federal money. They're frequently used to block agency actions that lack full congressional support without requiring separate legislation. If the requested language were added to the CFTC's FY2027 budget, it would prevent the agency from drawing on appropriated funds to litigate against state gambling laws applied to prediction markets.
It would not immediately terminate existing CFTC lawsuits — those are already in federal court — but it could constrain the CFTC's ability to fund continued legal action and effectively prohibit it from filing new suits against additional states.
The Appropriations Subcommittee the letter targets exercises budget oversight over the CFTC, making it the right venue for this kind of restriction. Whether the subcommittee acts on the request depends on its chair, Senator Hagerty, and the broader Senate majority — dynamics that will play out in FY2027 appropriations negotiations expected this fall.
The CFTC's Position: Exclusive Federal Jurisdiction
CFTC Chairman Michael Selig has been the driving force behind the agency's aggressive stance. Selig argues that prediction market contracts — structured as binary event contracts on CFTC-registered exchanges — qualify as "swaps" under the Commodity Exchange Act. Under that reading, federal commodities law grants the CFTC exclusive jurisdiction over these markets, preempting conflicting state gambling regulations.
Selig has backed that position with federal lawsuits. As of late June 2026, the CFTC has sued nine states: Connecticut, Illinois, Arizona, Wisconsin, New York, Minnesota, Rhode Island, New Mexico, and most recently Kentucky — the ninth state added to the list in June. In each case, the CFTC has asked federal courts to block the states from applying their gambling laws to prediction market platforms operating under CFTC registration.
The CFTC's theory — shared by the platforms — is that a patchwork of state-by-state rules would fragment the national market, create conflicting regulatory obligations, and undermine the uniform access requirements that apply to federally licensed exchanges.
A Divided Court Landscape
The senators' letter lands amid growing legal uncertainty at the federal appellate level.
In April 2026, the Third U.S. Circuit Court of Appeals became the first federal appellate court to rule on the state-federal jurisdiction dispute, siding with the CFTC. In a case brought by New Jersey against Kalshi, the court held that the Commodity Exchange Act preempts state gambling laws as applied to sports-related event contracts listed on CFTC-registered markets — a significant win for the industry and the agency.
But the Third Circuit ruling doesn't resolve the question nationally. The Sixth Circuit has signaled skepticism toward the CFTC's preemption arguments in a similar case, and the Fourth and Ninth Circuits are expected to issue rulings following recent oral arguments. If those circuits diverge from the Third Circuit, the disagreement could set up a U.S. Supreme Court review — the kind of definitive resolution that courts and lawmakers have been signaling may be necessary.
The circuit-split scenario is part of what makes the appropriations rider tactically interesting: it provides Congress with a lever to constrain the CFTC's litigation strategy while courts work through the jurisdiction question in parallel.
The Growing State-Level Map
For prediction market users, the legal battle isn't abstract. Enforcement actions have real, immediate effects on platform access.
Michigan: Attorney General Dana Nessel secured a temporary restraining order against Kalshi on June 29, 2026, barring the platform from offering sports-related event contracts in Michigan until July 13. The order carries a $120,000-per-day penalty for non-compliance and requires geofencing of Michigan users.
Illinois: Senate Bill 3019 — which imposes a $15 million upfront sports betting license requirement and a tiered transaction tax on sports event contracts — took effect July 1, 2026. Kalshi has filed its own federal lawsuit challenging the Illinois law as a violation of the Supremacy Clause, arguing the CFTC's registration pre-empts the state's licensing framework. No temporary restraining order has been granted in Illinois as of publication.
Minnesota: Enacted what the CFTC has characterized as the first outright ban on prediction markets in the country. The state's law is also subject to ongoing legal challenge.
More than 20 states have issued enforcement actions, cease-and-desist letters, or filed lawsuits arguing that prediction market platforms are operating as unlicensed sports betting operators. Attorneys general from more than 38 states have signed onto positions supporting state regulatory authority over these platforms.
The CLARITY Act Intersection
The senators' letter also arrives as Congress is weighing the Digital Asset Market Clarity (CLARITY) Act — legislation that would establish formal regulatory lines between the CFTC and the Securities and Exchange Commission over digital assets. Gaming and gambling industry organizations have petitioned senators to amend the bill to explicitly bar sports event contracts from coverage, arguing that the CFTC's authority was never intended to extend to prediction market wagers.
If that amendment were added, it would effectively legislate a resolution to the state-federal jurisdiction dispute that the courts are still working out — and would do so in a direction unfavorable to the platforms.
The CLARITY Act represents a second congressional front operating in parallel with the appropriations rider strategy. One targets the CFTC's litigation budget; the other targets its substantive authority. Together, they reflect growing congressional interest in taking a more direct role in shaping the regulatory outcome for prediction markets.
What This Means for Prediction Market Users
The political alignment is clear: 17 Democratic senators have sided with state gaming regulators and tribal interests against the CFTC and the prediction market platforms, while the Trump administration — which appointed Chairman Selig — has backed the industry's federal-jurisdiction argument.
For users on Kalshi, Polymarket US, and other CFTC-registered platforms, the near-term picture is continued uncertainty. No federal court has definitively resolved the state-federal preemption question across all circuits. Congress may now act to constrain the CFTC's ability to fight that battle. And state-level restrictions are accumulating faster than courts can resolve them.
Users in states with active restrictions — Michigan (TRO through July 13), Illinois (licensing requirement effective July 1), and Minnesota (outright ban) — face the most immediate access questions. Users elsewhere should monitor circuit court decisions and any new state legislation, as the legal map has been changing on a near-weekly basis.
For now, both platforms remain operational in the majority of U.S. states. Whether that continues to hold depends on at least four pending federal circuit court decisions, FY2027 appropriations negotiations this fall, and the outcome of the CLARITY Act debate — a convergence of legal and legislative timelines that could substantially reshape the industry before year-end.
Frequently Asked Questions
Can these senators actually stop the CFTC from suing states? Not through a letter alone. An appropriations rider would need to be adopted as part of the FY2027 spending bill, which requires passage by both chambers of Congress and a presidential signature. The current administration has supported the CFTC's position, making presidential approval politically difficult. However, appropriations riders are sometimes embedded in must-pass spending bills as part of broader compromises.
Which states have already restricted prediction markets? As of July 1, 2026: Michigan has a temporary restraining order barring Kalshi from sports contracts through July 13. Illinois requires state sports betting licenses and imposes transaction taxes effective July 1. Minnesota has enacted an outright ban. More than 20 additional states have issued cease-and-desist letters or filed enforcement actions.
What is the CFTC's exclusive jurisdiction argument? The CFTC contends that binary event contracts on registered exchanges qualify as "swaps" under the Commodity Exchange Act, placing them under exclusive federal commodities regulation — the same framework that governs grain futures and interest rate derivatives. Under this theory, state gambling laws cannot override federal commodity law for federally licensed markets.
What did the Third Circuit rule in April 2026? In a case brought by New Jersey against Kalshi, the Third Circuit held that the Commodity Exchange Act preempts state gambling laws as applied to sports-related event contracts on CFTC-registered prediction market exchanges. It was the first federal appellate court to uphold the CFTC's preemption argument, though other circuits have signaled a different view.
Could this issue reach the Supreme Court? Possibly. Legal analysts note that if different circuit courts reach conflicting conclusions on the preemption question — which appears increasingly likely — the conditions for Supreme Court review would be met. A certiorari petition could be filed as early as late 2026 if an additional circuit rules against CFTC preemption.
Sources: Blumenthal & Merkley Lead Colleagues in Push to End CFTC Assault on State Prediction Markets Oversight — Senator Merkley's official website, June 25, 2026; Full text of letter (PDF) — Senator Blumenthal's official website, June 24, 2026; CFTC press releases via cftc.gov; Kalshi sues Illinois over new tax on prediction market sports bets — Ars Technica, June 29, 2026.