CFTC Is Now Arguing Against Its Own Court
The agency filed in New York to overturn the Ninth Circuit's swap ruling — creating a three-layer legal conflict that may make Supreme Court review unavoidable.
Last updated: September 7, 2026 · 5 min read
What Happened on September 7, 2026
The CFTC filed a legal brief in the Southern District of New York arguing that the Ninth Circuit "improperly excluded event contracts from the swap definition" under the Commodity Exchange Act.
Case name and docket number: confirm at pacer.gov for the latest case details.
The Ninth Circuit previously ruled on August 28, 2026 that prediction market sports event contracts are NOT swaps under the CEA — a holding that stripped Kalshi's preemption shield in Nevada and provided a roadmap for other western states to enforce their gambling laws. By filing in SDNY, the CFTC is asking a different federal court to reach the opposite conclusion about its own statute.
This is significant because the CFTC has simultaneously been suing states to defend prediction market platforms under a federal preemption theory that the Ninth Circuit just rejected. The agency is now litigating in two directions at once.
Why This Creates Three Layers of Legal Conflict
Layer 1 — Circuit Split (pre-existing)
The Third Circuit (NJ/PA/DE) ruled that sports event contracts ARE swaps under the Commodity Exchange Act — giving CFTC exclusive jurisdiction and blocking state enforcement. The Ninth Circuit (NV/WA/OR/CA + others) ruled the opposite on August 28, 2026: sports event contracts are NOT swaps, so states may enforce their gambling laws. Same product, opposite holdings in two federal appeals courts.
Layer 2 — CFTC vs. Its Own Circuit — September 7, 2026
The CFTC now argues in the Southern District of New York that the Ninth Circuit — which governs the states where Kalshi operates under state enforcement — reached the wrong legal conclusion about its own statute. The agency that has been defending prediction markets in court is now asking a separate federal court to overturn a ruling by its own circuit.
Layer 3 — State vs. Federal Enforcement (ongoing)
State attorneys general in New Jersey, Washington, Michigan, New York, and Connecticut are enforcing state gambling laws against platforms the CFTC says federal law protects. The CFTC's loss in the Ninth Circuit complicates its federal preemption argument in those states — and the agency's new SDNY position now adds a third front to an already multi-directional dispute.
The practical effect: three overlapping authority claims — state AG enforcement, CFTC federal protection, and now CFTC federal challenge to its own circuit — are all active simultaneously. Each layer independently affects platform access decisions and creates legal uncertainty for traders in affected states.
Why Is the CFTC Filing in New York?
Legal strategy
The Southern District of New York sits within the Second Circuit — outside the Ninth Circuit's jurisdiction. A favorable SDNY ruling would create a second federal precedent contradicting the Ninth Circuit's swap holding, making the split irreconcilable without Supreme Court intervention.
SCOTUS pressure
SCOTUS grants cert more readily when (1) circuits conflict, AND (2) the federal agency responsible for the statute also disagrees with the circuit's interpretation. Both conditions are now satisfied. New Jersey's cert petition filed September 2 provides the formal vehicle for review.
A Criminal Case Filed the Same Day
This is the first known case in which a criminal complaint specifically alleges that someone traded prediction market contracts using non-public government information. It is separate from the civil CFTC swap-definition filing and represents a new category of prediction market enforcement: criminal misuse of government information, distinct from the civil manipulation or civil enforcement actions the CFTC has previously pursued. For more on the enforcement tracker, see Prediction Market Insider Trading: Cases, Rules & Enforcement.
What This Means for Your Accounts
- No platform has been ordered to close or restrict user access as a result of the September 7 filings.
- Your existing prediction market accounts and open positions are not directly affected by the CFTC SDNY brief.
- The legal dispute is about regulatory authority — which law governs prediction market contracts — not about whether platforms are legal for end users today.
- If SDNY rules against the Ninth Circuit's swap theory, it deepens legal uncertainty and increases SCOTUS pressure. If SCOTUS takes the case, it could resolve the question nationally.
- State-level access restrictions already in effect (Nevada, Washington, Michigan, and others) remain in force regardless of this filing.
- Timeline: SCOTUS could potentially take a case in its 2026–27 term, but there is no guarantee. Full resolution could be 18–24 months away.
Does This Force SCOTUS to Intervene?
SCOTUS typically grants certiorari when circuits are split AND the question is of national importance AND the federal agency responsible for the statute disagrees with the circuit's reading. As of September 7, 2026, all three conditions appear to be met: the Third and Ninth Circuits have contradictory holdings on the same legal question; prediction markets have become a major financial product with tens of millions of users; and the CFTC is now actively litigating against the Ninth Circuit's interpretation in a new federal venue.
None of this guarantees SCOTUS intervention. The Court receives thousands of cert petitions annually and grants fewer than 100. However, the configuration of factors — agency-circuit disagreement layered on top of a confirmed circuit split — is the pattern that most reliably leads to cert. New Jersey's petition filed September 2 is the likely vehicle.
Key upcoming dates
- ~Sept 11, 2026: Kalshi en banc rehearing window closes (Ninth Circuit)
- Sept 2, 2026: NJ cert petition filed — Flaherty v. KalshiEX
- SCOTUS conference date: Confirm at scotusblog.com — pending verification
For the full legal tracker, see Will SCOTUS Hear the Prediction Markets Case?
Frequently Asked Questions
Primary Sources
- CFTC — Understanding Prediction Markets and Event Contracts — CFTC primary position on event contracts as swaps
- CFTC Press Room (check for Sept 7, 2026 release) — Primary source for CFTC SDNY filing details; docket pending verification
- SDNY US Attorney — Press Releases — Primary source for September 7 criminal case filing; details pending verification
- Third Circuit — KalshiEX v. Flaherty (April 2026) — Third Circuit held sports event contracts are swaps under CEA
- Ninth Circuit — KalshiEX LLC v. Assad, No. 25-7516 (Aug. 28, 2026) — Ninth Circuit held sports event contracts are NOT swaps under CEA