The US Commodity Futures Trading Commission is suing Illinois, Arizona and Connecticut for attempting to outlaw or regulate prediction markets like Kalshi and Polymarket. The CFTC believes it has sole jurisdiction to regulate these platforms, and that states attempting to classify them as illegal gambling are overstepping their authority.

CFTC defines prediction markets as “designated contract markets” where futures contracts are traded, essentially letting people bet on the outcome of events (for example, who will be the Democratic nominee for president in 2028). And because futures contracts are financial instruments distinct from traditional bets, they arguably fall under the supervision of the CFTC rather than the sports gambling authorities of individual states.

Multiple states, including the three the CFTC is suing, have challenged that interpretation of what prediction markets are and how they operate. Nevada sued Kalshi in February for operating a sports gambling market without proper licenses, a lawsuit made possible because a federal appeals court declined to prevent Nevada from pursuing its case. Arizona’s attorney general filed a lawsuit against Kalshi in March along similar illegal sports gambling lines, and because the platform let people bet on Arizona elections, which violates state law. Both Illinois and Connecticut have also sent Kalshi and other prediction markets cease-and-desist letters, ordering them to stop advertising and offering their services in their respective states.

“The CFTC will continue to safeguard its exclusive regulatory authority over these markets and defend market participants against overzealous state regulators,” CFTC Chairman Michael S. Selig said in a statement. “This is not the first time states have tried to impose inconsistent and contrary obligations on market participants, but Congress specifically rejected such a fragmented patchwork of state regulations because it resulted in poorer consumer protection and increased risk of fraud and manipulation.”

Attempts to regulate, or in this case, stave off regulation of predication markets are complicated by the fact that President Donald Trump’s family has ties to the industry. Donald Trump Jr. is a paid advisor for Kalshi and investor in Polymarket. Major transactions made before recent US military actions in Iran have also suggested that people close to the government might be trading on prediction markets with insider knowledge. Some prediction markets have implemented new rules to prevent insider trading, but given the circumstances, it makes sense that states wouldn’t be satisfied with companies policing themselves.