The Trump administration escalated its legal battle with states over prediction markets on Tuesday, filing a lawsuit against Minnesota just one day after Governor Tim Walz signed a law banning the platforms. The Commodity Futures Trading Commission (CFTC) argues that the state measure illegally encroaches on its exclusive jurisdiction over financial derivatives, including contracts offered by sites like Kalshi and Polymarket.
The lawsuit, filed in federal court, seeks to block Minnesota's law from taking effect on August 1. It warns that if allowed to stand, the statute could criminalize the operations of prediction market exchanges and their partners. “If Minnesota’s law is permitted to go into effect, the exchanges that offer these longstanding contracts—as well as those who partner with them—can be prosecuted as felons,” the complaint states. The CFTC called the state action “a flagrant and unprecedented incursion into the Commission’s exclusive regulatory sphere.”
Governor Walz, a Democrat, signed the measure on Monday, making Minnesota the latest state to target prediction markets, which allow users to wager on outcomes of elections, sports, and other events. State officials have accused the platforms of operating illegal gambling operations, while the industry insists it provides valuable data and is distinct from traditional betting.
The CFTC, under Chair Michael Selig, has become a key ally for prediction market proponents. Selig, confirmed by the Senate in December, announced in February that he would challenge any state effort to regulate these markets. Since then, the commission has filed similar lawsuits against Arizona, Connecticut, Illinois, New York, and Wisconsin. The Minnesota case marks the sixth such legal action by the agency.
This legal clash comes amid broader political tensions, including ongoing rifts over judicial appointments and internal GOP battles over primary challenges. The outcome of the Minnesota lawsuit could set a precedent for how states and the federal government divide authority over emerging financial technologies.
Prediction markets have grown in popularity, particularly for political forecasting, but they face mounting scrutiny from both state regulators and federal agencies. The CFTC maintains that these platforms fall under the Commodity Exchange Act, giving it sole authority to oversee them. Critics argue the markets risk becoming vehicles for gambling and manipulation.
Legal experts say the case tests the limits of state police powers versus federal preemption. If the court sides with the CFTC, it could invalidate similar state bans and reinforce Washington's control over prediction markets. A ruling against the commission, however, could embolden other states to impose their own restrictions.
The Trump administration's aggressive stance aligns with broader efforts to limit state interference in financial markets, even as international tensions and domestic political dynamics continue to shape the regulatory landscape. The Minnesota lawsuit is expected to move quickly, with both sides seeking a preliminary injunction before the law's August start date.
