The CFTC Sued Utah to Shield Kalshi After a Federal Judge Already Ruled Utah Can Ban Its Prediction Bets

The federal government has sued a US state, again, to protect a prediction market. The United States and the Commodity Futures Trading Commission filed suit against Utah and its attorney general, Derek Brown, asking a federal court to stop the state from enforcing its gambling laws against Kalshi and other CFTC regulated exchanges.

What makes this one striking is that Utah has already won. A federal judge ruled in August that the state can apply its gambling laws to Kalshi, and an appeals court refused to pause that ruling. So Washington is now going after Utah directly.

Utah calls it an online casino

The latest round started on October 20, when Brown sued Kalshi and its affiliates, along with Susquehanna International Group and Susquehanna Government Products, in Salt Lake County state court. The suit says Kalshi lets Utahns bet on sports, elections and other outcomes in violation of state law, and calls it a public nuisance "causing substantial ongoing harm."

"Kalshi runs an online casino in Utah and calls it a prediction market. That violates Utah law," Brown said. Utah is one of only two states where gambling is also banned by the state constitution. "For 130 years, Utah has been clear: gambling has no place here, and we will enforce our laws."

The state alleges the defendants began offering bets to Utah residents by at least September 2024, and that Kalshi's contracts are "indistinguishable from the bets offered by a traditional sportsbook."

Kalshi already lost this argument once

Kalshi struck first. In February it sued Utah officials, arguing that the federal Commodity Exchange Act blocks the state from regulating it. In August, US District Judge Robert Shelby granted summary judgment to Utah, holding that federal law does not override the state's gambling laws. On September 8, the Tenth Circuit denied Kalshi's request to block enforcement while it appeals. That appeal is still pending.

Kalshi is not a party to the new federal case. Instead, the CFTC's complaint, filed October 26 in the US District Court for the District of Utah, asks the court to declare Utah's gambling laws preempted as applied to CFTC regulated designated contract markets. It also seeks injunctions barring the state from investigating or enforcing against those exchanges and their affiliates and partners. The agency calls the event contracts "swaps" under federal law, and says Utah's efforts "intrude on the exclusive federal scheme Congress designed to oversee United States commodity derivatives markets."

"Utah seeks to shut down prediction markets across a wide variety of markets," said CFTC Chairman Michael Selig, who argued the contracts give the public information about future events. "Congress entrusted the CFTC to be the federal regulator with sole responsibility to oversee these markets," he added, promising the agency would defend its exclusive jurisdiction.

Ten states and counting

Utah is the tenth state the CFTC has sued, after Arizona, Connecticut, Illinois, New York, Wisconsin, Minnesota, Rhode Island, New Mexico and Kentucky, The Block reported. The agency has also filed briefs in four federal appeals courts and one state supreme court. The states counter that sports betting is theirs to regulate, and that the platforms operate illegally while avoiding taxes.

Kalshi has also lost at the Sixth Circuit, which let Ohio and Tennessee treat its sports contracts as gambling. With the fight now spread across state and federal courts, the question of whether prediction markets are finance or gambling could end up at the Supreme Court.

The CFTC is not only playing defense for the industry. The same day, Reuters reported the agency is investigating Polymarket over whether it broke a 2022 settlement in which it agreed to stop offering contracts to US users on its flagship overseas platform. The Utah attorney general's office did not immediately respond to The Block's request for comment.

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