CFTC fires back after Kentucky targets Polymarket, Kalshi

The Commodity Futures Trading Commission has sued Kentucky in federal court, seeking to stop the state from enforcing gaming laws against federally regulated prediction market operators. 

The case names Kentucky Governor Andrew Beshear, Attorney General Russell Coleman, Department of Revenue Commissioner Thomas B. Miller, and the Kentucky Horse Racing and Gaming Corporation as defendants.

The CFTC says Kentucky’s actions conflict with the Commodity Exchange Act, which gives the regulator authority over futures, options, and swaps traded on federally regulated exchanges. 

“Kentucky is the latest state attempting to shut down federally-regulated event contracts,” said CFTC Chair Michael Selig.

The agency asked the court for declaratory and injunctive relief. Kentucky says sports-linked contracts need state oversight.

State action targets platforms

Kentucky sued Kalshi, Polymarket, and partners tied to Coinbase, Robinhood, and Webull on June 17. The state said the companies offered sports event contracts without a Kentucky gaming license and without following state rules. It also argued that the products fall under the state’s definition of sports wagering.

The CFTC rejected that view in its complaint. It said Kalshi and Polymarket are designated contract markets under federal oversight. It also said Coinbase, Robinhood, and Webull are registered futures commission merchants that can offer event contracts through partnerships with regulated exchanges. 

Moreover, the regulator described the targeted contracts as swaps under federal commodities law. Kentucky also accused the platforms of offering few or no resources for users who may need gambling help.

Tax dispute adds another front

The lawsuit also challenges Kentucky’s new 14.25% excise tax on prediction market transaction fees and contract notional value. The CFTC said the tax applies to contracts traded in Kentucky or by Kentucky residents. 

“This tax essentially makes it impossible for prediction markets to operate in Kentucky.” the agency said in the complaint.

In a recent update, crypto.news covered Kentucky’s earlier fight with prediction market firms over that tax. A coalition that included Kalshi, Crypto.com, and Polymarket sued the state, saying the tax targets federally regulated markets and treats prediction platforms differently from some gaming businesses. That tax case remains separate from Kentucky’s gambling complaints. The new CFTC case now puts both state enforcement and state taxation before federal courts.

Wider court fight continues

Kentucky is now the ninth state in the CFTC’s prediction market jurisdiction fight. As crypto.news reported, New Mexico became the eighth state earlier this month after the CFTC sued to block state gaming laws from reaching Kalshi’s sports contracts. Rhode Island, Wisconsin, Minnesota, New York, Arizona, Connecticut, and Illinois have also been part of the regulator’s legal push.

The dispute centers on whether sports-related event contracts fall under federal derivatives law or state gambling law. States argue that the products look like sports betting and need local licenses, consumer checks, and gambling safeguards. Prediction market firms and the CFTC say regulated exchanges already sit under a federal system. 

President Donald Trump has backed CFTC control over prediction markets, calling the issue “critically important.” His son, Donald Trump Jr., has invested in Polymarket and advises Kalshi.

The sector has continued to draw large firms even as court fights grow. Previously, crypto.news explored Meta’s reported work on Arena, a points-based prediction market app. That report followed growing interest from firms such as Charles Schwab, Cboe, Kalshi, and Polymarket.