Connecticut’s effort to shut down unlicensed prediction market platforms has triggered a federal lawsuit, escalating a dispute over whether those products are gambling or federally regulated financial instruments.
The Commodity Futures Trading Commission filed suit Thursday in U.S. District Court, arguing that contracts tied to the outcome of events — including sports — fall under federal commodities law.
Those products, commonly referred to as prediction markets, allow users to buy and sell contracts based on whether a specific event will occur. While they can resemble sports betting, federal regulators classify them as derivatives trading.
Connecticut has taken action to halt unlicensed sports wagering against prediction market platforms including KalshiEX LLC, Robinhood Derivatives LLC and Crypto.com. Last year, the Department of Consumer Protection issued cease-and-desist orders to the three platforms, citing insufficient consumer protections.
State officials said the companies allowed underage betting, targeted residents on self-exclusion lists and lacked proper technical safeguards for users’ funds.
The federal government claims the state has overstepped its authority by interfering with the federally regulated markets.
The complaint seeks a court declaration that Connecticut’s regulatory actions are preempted by federal law and an injunction blocking enforcement against the platforms.
The federal lawsuit names Gov. Ned Lamont, Attorney General William Tong, Department of Consumer Protection Commissioner Bryan T. Cafferelli and the DCP’s Gaming Division, including director Kristofer Gilman, as defendants.
The dispute underscores growing tension between state regulators seeking to enforce local gambling laws and federally regulated platforms offering prediction markets that resemble sports betting. Platforms like Kalshi allow users to trade on the outcome of sports, elections and other events, blurring the line between investment and gambling.
Connecticut currently licenses three online sports wagering operators: DraftKings, FanDuel and Fanatics. These operators are subject to state oversight, including age verification and technical safeguards to protect consumers.
The CFTC said in a press release that Congress intended a uniform federal framework for derivatives markets, and that state attempts to regulate federally registered entities could undermine it.
The Trump administration also announced similar lawsuits against Arizona and Illinois on Thursday.
Click here to see the Connecticut complaint.
