The Justice Department on Tuesday filed a federal lawsuit against Minnesota over its newly enacted prediction market ban, arguing the state law runs afoul of federal authority and disrupts a market Congress intended to regulate at the national level.
Governor Tim Walz (D) signed the legislation earlier this week, making it a felony to operate or promote prediction markets within state lines. The law takes effect August 1 and targets platforms that allow users to bet on event outcomes, from elections to sports. While individuals placing bets are not charged, anyone running or advertising such a market could face criminal penalties, as could those providing “supportive services” or data to these firms.
“Minnesota’s attempt to criminalize derivatives contracts is precisely what Congress sought to prevent,” the Justice Department wrote in the complaint, which was assigned to U.S. District Judge Laura Provinzino, a Biden appointee in St. Paul.
The Trump administration contends that prediction markets fall under the Commodity Exchange Act, a Depression-era law giving the Commodity Futures Trading Commission (CFTC) exclusive authority over swaps transactions on designated markets. The DOJ argues Minnesota’s statute amounts to a “massive short-circuiting” of that federal framework.
Major platforms like Kalshi have backed the federal position, but a growing number of states have moved to restrict prediction markets as trading volume has surged to billions of dollars monthly. Minnesota’s law stands out for its criminal penalties, which the DOJ warns could ultimately ensnare professional sports leagues, news organizations, and financial institutions that supply market data and real-time information.
This legal clash echoes broader tensions between state and federal power, as seen in the Trump administration’s broader push against state-level financial regulations. A spokesperson for the Minnesota attorney general’s office had not responded to a request for comment by press time.
The case centers on whether prediction markets qualify as swaps under the Commodity Exchange Act. If the court sides with the administration, it could reinforce the CFTC’s grip over the industry and discourage other states from following Minnesota’s lead. If the state prevails, it may embolden more aggressive local crackdowns on a rapidly expanding sector.
Legal experts say the outcome could have ripple effects beyond Minnesota, especially as prediction markets grow in political and financial significance. The lawsuit also comes amid heightened scrutiny of financial oversight, including new executive orders tightening bank scrutiny of customer citizenship.
