CFTC Sues Utah to Protect Kalshi as State Files Criminal Charges Against Founders

The jurisdictional battle over the legality of prediction markets has escalated into a direct confrontation between federal regulators and state law enforcement. The US Commodity Futures Trading Commission filed a federal lawsuit against Utah to prevent the state from shutting down registered contract markets, while Utah prosecutors simultaneously filed criminal charges against prediction market operator Kalshi and its executives. ¹³

The dual legal actions highlight a widening fracture in US regulatory authority over event contracts. At the center of the dispute is whether federal approval by the CFTC supersedes state-level anti-gambling statutes, a question that has split federal appellate courts and triggered litigation across the country. ²

The CFTC's Federal Offensive

The CFTC filed suit in federal court to block Utah from utilizing state law to shutter CFTC-registered contract markets. ¹ The agency argues that Utah's enforcement actions obstruct congressional intent to federally preempt state regulations regarding commodity derivatives. ¹

CFTC Chairman Michael S. Selig stated that event contracts provide the public with valuable information about the outcomes of future events, in addition to serving hedging and investment purposes. ¹ Selig asserted that Congress granted the CFTC sole responsibility to oversee these markets, and the agency intends to defend its exclusive jurisdiction over commodity derivatives. ¹

Utah is not the only state facing federal pushback. The CFTC has initiated legal proceedings against nine other states: Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin. ² The commission has also filed briefs in support of Kalshi in various federal appeals courts and one state supreme court. ¹²

Utah's Criminal Escalation

While the CFTC seeks to protect Kalshi on a federal level, Utah has taken aggressive local action. The state filed criminal charges against Kalshi, alongside its co-founders, Chief Executive Officer Tarek Mansour and Chief Operating Officer Luana Lopes Lara. ³

The charging documents outline 14 felony counts, including 13 counts of violating Utah's strict prohibition on gambling and one count of profiting from illegal activity. ³ The felony charges carry the potential for jail time, though the attorney general's office has not specified the exact criminal penalties it will seek. ³

Utah Attorney General Derek Brown, a Republican, emphasized that gambling is prohibited not only by state law but also under the Utah state constitution—making it one of only two states with such constitutional bans. ² Brown stated that calling the platform a prediction market does not change its fundamental nature, and federal registration does not exempt a company from state law. ³

Kalshi dismissed the criminal charges as a "crazy overreach" and accused Utah of playing politics. ³ The company maintained its position that prediction markets fall strictly under federal jurisdiction and stated its intention to halt the state's actions in court. ³

A History of Legal Defeats in Utah

The CFTC filed its lawsuit in the same US district court where Kalshi previously suffered a significant legal defeat. ² In February, Kalshi filed a preemptive lawsuit against Utah in an attempt to block the state from initiating enforcement actions. ²

In August, US District Judge Robert Shelby granted summary judgment in favor of Utah and denied Kalshi's motion for a preliminary injunction. ² Shelby concluded that the federal law Kalshi relied upon did not preempt Utah's authority to enforce its anti-gambling laws. ² The judge noted that the US Commodity Exchange Act explicitly provides for state jurisdiction over gaming laws in most circumstances, indicating that Congress recognized some states permit gambling while others strictly prohibit it. ²

Kalshi appealed the decision to the US Court of Appeals for the Tenth Circuit. ² On Sept. 8, Tenth Circuit judges denied Kalshi's emergency motion for an injunction pending appeal, leaving the company vulnerable to state enforcement. ² Utah filed its civil enforcement action roughly six weeks later. ²

Read more: CFTC Sues Utah Over Kalshi Ban as State Files Criminal Charges Against Founders

Implications for the Broader Market

The outcome of the Utah conflict carries severe implications for the broader prediction market and sports betting industries. If Utah successfully shuts down Kalshi's operations within the state, it could establish a precedent threatening other platforms, including Kalshi's primary rival, Polymarket. ²

The legal jeopardy extends to major sports betting operators like DraftKings and FanDuel. ² Both companies are registered with the CFTC and advertise their availability across all US states through a mix of products, which includes prediction-market platforms in jurisdictions like Utah. ²

The federal agency argues that multiple federal courts have swiftly responded to similar state actions by issuing temporary restraining orders and preliminary injunctions to prevent the enforcement of gambling laws against CFTC-regulated exchanges. ²

What to Watch

The fragmented legal landscape is widely expected to require intervention by the US Supreme Court. ²³ Federal appellate courts are currently divided on the issue of whether event contracts qualify as swaps and whether CFTC jurisdiction preempts state gambling laws. ²

The Third Circuit ruled in favor of prediction markets, determining that New Jersey cannot regulate sports bets on these platforms. ² Conversely, Kalshi lost similar cases in the Sixth and Ninth Circuits regarding state laws in Ohio, Tennessee, and Nevada. ²

New Jersey has already petitioned the Supreme Court to resolve this circuit split. ² The petition has garnered significant support, with 39 other states and the District of Columbia filing a brief backing New Jersey's request for Supreme Court review. ²