Circuit

Brown

<p><strong>On October 27, 2026, the US Commodity Futures Trading Commission (CFTC) <a href="https://www.cftc.gov/PressRoom/PressReleases/9315-26" rel="noopener noreferrer nofollow">filed a lawsuit against the state of Utah</a> to prevent it from enforcing its gambling laws on prediction markets operating under federal jurisdiction.</strong></p>
<p>For prediction exchange operators, such as Kalshi, the issue is larger than Utah’s gambling laws. The question is whether these prediction markets can work within the framework of a single set of federal regulations or whether they have to abide by specific gambling laws of every state.</p>
<h3 class="wp-block-heading" id="strong-two-lawsuits-pointing-in-opposite-directions-strong"><strong>Two lawsuits pointing in opposite directions</strong></h3>
<p>On October 20, 2026, Utah Attorney General Derek Brown filed a lawsuit against five entities owned by Kalshi and Susquehanna for the alleged facilitation of illegal gambling. The state sought an injunction and restoration of losses and various fees estimated to be between $30.6 million and $61.2 million. According to <a href="https://www.cryptopolitan.com/utah-sues-kalshi-and-susquehanna-as-prediction-market-scrutiny-widens/" rel="noopener noreferrer nofollow">Cryptopolitan</a>, naming Susquehanna broadens the legal battle to the market makers, who are the providers of liquidity and trades.</p>
<p>Kalshi claims that its contracts are derivatives that are regulated under federal jurisdiction. But Utah states that the <a href="https://www.cftc.gov/LawRegulation/CommodityExchangeAct/index.htm" rel="noopener noreferrer nofollow">Commodity Exchange Act</a> still allows room for state gambling laws. The new case being brought by the CFTC puts that disagreement in a federal-state showdown.</p>
<h3 class="wp-block-heading" id="strong-an-august-ruling-and-44-states-push-back-strong"><strong>An August ruling and 44 states push back</strong></h3>
<p>The federal argument has faced challenges in the courtroom. On August 4, a federal judge in Utah <a href="https://cases.justia.com/federal/district-courts/utah/utdce/2:2026cv00151/162647/65/0.pdf?ts=1785950677" rel="noopener noreferrer nofollow">ruled</a> that the Act does not prevent states from enforcing its laws. Appellate courts have different decisions. The Third Circuit supported Kalshi in New Jersey. The Ninth Circuit supported Nevada, and the Sixth Circuit sided with Ohio and Tennessee.</p>
<p>Opposition has not just been confined to the courts. In July, <a href="https://business.cch.com/srd/20260726_State_AGs_letter_CFTC_prediction_markets072926.pdf" rel="noopener noreferrer nofollow">44 state attorneys general</a> contested the authority of the CFTC over contracts related to sports. On October 9, 2026, the agency suggested classifying some <a href="https://www.cftc.gov/PressRoom/PressReleases/9310-26" rel="noopener noreferrer nofollow">event contracts as swaps</a>. This rule is not final yet.</p>
<p>Furthermore, the CFTC is suing states directly. Utah is the <a href="https://www.theblock.co/news/regulation/2026-10-27-cftc-sues-utah-battle-over-prediction-market-regulation-intensifies-431922" rel="noopener noreferrer nofollow">tenth state</a> that it has filed suit against after states Arizona, Connecticut, Illinois, New York, Wisconsin, Minnesota, Rhode Island, New Mexico, and Kentucky.</p>
<div class="wp-block-image">
 <figure class="aligncenter size-large"><img width="1024" height="576" src="https://www.cryptopolitan.com/wp-content/uploads/2026/10/Cryptopolitan-logo-joins-the-market-timeline-1024x576.png" alt="">
  <figcaption><strong>CFTC vs. US States: Prediction Market Regulation Battle and $419.1B Trading Volume</strong>
  </figcaption>
 </figure>
</div>
<h3 class="wp-block-heading" id="strong-what-a-419-1-billion-business-stands-to-lose-strong"><strong>What a $419.1 billion business stands to lose</strong></h3>
<p>The legal dispute can have significant financial consequences. <a href="https://www.artemis.ai/sectors/prediction-markets/breakdown" rel="noopener noreferrer nofollow">Artemis reports</a> that the prediction market registered trading volume of $419.1 billion for the year up to October 27, 2026. Sports contracts took the top share at $173.6 billion (41.4%), followed by exotics at $149.3 billion and crypto at $60.3 billion.</p>
<p>Kalshi has plenty riding on sports contracts. <a href="https://www.reuters.com/legal/government/kalshi-could-be-headed-supreme-court-showdown-ceo-says-2026-10-21" rel="noopener noreferrer nofollow">Reuters</a> reported the company’s valuation at roughly $40 billion, while CEO Tarek Mansour said sports still account for nearly 65% of its revenue, down from around 95% nine months earlier.</p>
<p>A patchwork of state rules could make these contracts more expensive to offer or restrict access in certain markets. Legal pressure on liquidity providers could also widen trading spreads and reduce market activity. So far, however, there is no evidence that Susquehanna has withdrawn from Kalshi.</p>
<h3 class="wp-block-heading" id="strong-europe-restricts-asia-hesitates-strong"><strong>Europe restricts, Asia hesitates</strong></h3>
<p>The US is not alone in trying to draw the line between financial trading and gambling. In July, <a href="https://www.esma.europa.eu/press-news/esma-news/esma-reminds-firms-existing-rules-and-obligations-under-binary-option-measures" rel="noopener noreferrer nofollow">ESMA</a> warned that event contracts classified as derivatives fall under existing retail binary-option bans. Firms distributing these products also need authorization as investment firms, while national gambling laws may still apply.</p>
<p>Asia faces a similar challenge. <a href="https://reports.tiger-research.com/p/do-you-really-know-prediction-markets-eng" rel="noopener noreferrer nofollow">Tiger Research</a> warns that restrictive regulations could drive trading activity offshore and leave users without adequate protection, even as major technology companies show growing interest in prediction markets.</p>
<p>Mansour told Reuters the dispute could reach the Supreme Court and expressed confidence in Kalshi’s position. But New Jersey—not Kalshi—<a href="https://www.supremecourt.gov/docket/docketfiles/html/public/26-299.html" rel="noopener noreferrer nofollow">petitioned the justices</a> after losing in the Third Circuit. The Court has not agreed to hear the case.</p>
<p>For now, watch Utah’s federal lawsuit, Kalshi’s appeal, and the CFTC’s pending swaps proposal.</p>
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CFTC sues Utah to shield prediction markets from state gambling laws

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