In April 2026, the CFTC filed federal lawsuits against three states trying to block CFTC-regulated prediction markets. What this means for traders, funds, and a
Prediction markets like Kalshi and Polymarket are federally regulated by the CFTC as Designated Contract Markets (DCMs). Despite this federal license, several states have argued that prediction market contracts constitute illegal gambling under state law — and have taken steps to restrict or block access for residents.
The CFTC's position: federal law preempts state gambling statutes when it comes to CFTC-regulated contracts. The lawsuits filed April 2, 2026 seek declaratory judgments in federal district courts establishing that CFTC-licensed prediction markets cannot be blocked by state gambling enforcement.
Four days after those suits were filed, the CFTC's core legal theory received its first federal appeals-court validation. On April 6, 2026, the Third Circuit ruled 2-1 in KalshiEX LLC v. Flaherty that the CFTC has exclusive jurisdiction over trades on DCMs, strengthening the agency's hand in its new cases against Arizona, Connecticut, and Illinois.
This follows Kalshi's 2024 federal court victory over the CFTC itself — a case that established prediction market election contracts as legally permissible. The new suits extend that logic to the states.
| State | Complaint status | Note |
|---|---|---|
| Illinois Sued | CFTC declaratory action filed | Not specified in public data |
| Arizona Sued | CFTC declaratory action filed | CFTC TRO GRANTED April 10, 2026 — criminal arraignment paused; first-ever criminal PM charges (March 17) |
| Connecticut Sued | CFTC declaratory action filed | AG lawsuit filed — platforms operational |
| Nevada | No federal action | TRO GRANTED March 20, 2026 — Kalshi blocked in NV; PI hearing April 3 |
| Washington | No federal action | WA AG civil suit filed March 27, 2026 — seeks to shut down Kalshi operations in WA |
Third Circuit validates CFTC preemption theory
Four days after the CFTC filed suit, the Third Circuit ruled 2-1 in KalshiEX LLC v. Flaherty that the CFTC has exclusive jurisdiction over trades on designated contract markets, the first federal appeals court ruling affirming prediction-market preemption over state gaming enforcement.
CFTC files suit against Illinois, Arizona & Connecticut
CFTC and DOJ filed three separate declaratory actions in federal district courts, seeking to pre-empt state gambling laws.
State AGs respond
Connecticut AG Tong vows to defend consumer protection laws; Illinois Gov. Pritzker's office accuses the federal government of 'carrying water' for the industry; Arizona Department of Gaming acknowledges the suit without further comment.
Timeline will update as litigation progresses. Federal briefing schedules typically run 3–6 months before initial rulings.
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