Prediction‑market betting on juries – court rulings and regulatory response

What happened

The Department of Justice (DOJ) and the Commodity Futures Trading Commission (CFTC) filed simultaneous federal lawsuits against the governors of Illinois, Connecticut, and Arizona 1. The agencies assert that the Commodity Exchange Act (CEA) preempts state gambling laws when applied to event contracts traded on CFTC-licensed exchanges 1. These filings coincide with an April 6, 2026, decision by the Third Circuit Court of Appeals, which affirmed a preliminary injunction barring New Jersey from enforcing its gambling laws against Kalshi’s sports-related event contracts 1. The court held that Kalshi demonstrated a likelihood of success in proving that the CEA grants the CFTC exclusive jurisdiction over these contracts as "swaps" traded on a designated contract market (DCM) 1.

New Jersey had previously issued a cease-and-desist letter to Kalshi, alleging that its sports contracts violated state constitutional prohibitions on betting on collegiate sports 1. Under New Jersey law, such violations are fourth-degree crimes carrying fines up to $100,000 1. The Third Circuit ruling found that state interference with these markets is preempted by federal law 1. As of the date of these legal actions, eight CFTC-regulated DCMs have self-certified more than 3,000 event contracts 1.

The CFTC has also shifted its regulatory approach, with the Director of Enforcement stating that "the era of regulation by enforcement is over" 1. The agency published an advance notice of proposed rulemaking (ANPRM) to establish formal regulations for event markets 1. Additionally, the CFTC announced five new enforcement priorities, specifically targeting insider trading in prediction markets and the illegal use of government information 1. A new cooperation policy and formal declination framework will replace the previous February 2025 policy 1.

Why it matters

The coordinated lawsuits by the DOJ and CFTC establish a federal front against state-level attempts to regulate event contracts as illegal gambling 1. By asserting field preemption, federal agencies are moving to protect the "exclusive jurisdiction" granted to the CFTC under 7 U.S.C. § 2(a)(1)(A) over futures, options, and swaps 1. This legal position treats event contracts—which pay out based on the occurrence or nonoccurrence of a contingency—as financial swaps rather than wagers 1.

For platform operators like Kalshi, the Third Circuit’s ruling provides a legal shield against criminal prosecution and six-figure fines in states with restrictive gambling statutes 1. The ruling protects the market value of contracts tied to political elections, macroeconomic data, and weather, which are determined by market forces on regulated exchanges 1. However, the CFTC’s new enforcement priorities mean that while platforms may be protected from state law, they face heightened federal scrutiny regarding the integrity of the trades themselves 1. The focus on insider trading and the misuse of government data suggests that participants who trade on non-public information could face federal sanctions even if the market itself is deemed legal 1.

What's next

The federal lawsuits against the governors of Illinois, Connecticut, and Arizona will determine if the Third Circuit’s preemption logic applies across other jurisdictions. The CFTC is expected to move from its advance notice of proposed rulemaking to a formal notice of proposed rulemaking, which would codify the requirements for listing event contracts 1.

The implementation of the CFTC’s new cooperation policy and declination framework will define how the agency handles self-reporting and enforcement actions moving forward 1. A final ruling in the New Jersey case would settle whether the preliminary injunction against state enforcement becomes permanent. The resolution of these cases will clarify whether states retain any authority to regulate specific contract types, such as collegiate sports, that are otherwise permitted under federal swap definitions 1.

What happened

The U.S. District Court for the Northern District of Illinois issued a preliminary injunction on October 12, 2026, barring the state from enforcing sports wagering laws against prediction market platforms 1. The ruling follows a December 2025 lawsuit filed by Coinbase, which argued that the Commodity Exchange Act (CEA) grants the Commodity Futures Trading Commission (CFTC) exclusive jurisdiction over these derivatives 1. In June 2026, the CFTC, the Coalition for Fair Markets, Kalshi, and OG filed additional motions for preliminary injunctions seeking the same relief 1. The court determined that the plaintiffs are likely to succeed on the merits of their claim that Illinois licensing laws are preempted by federal law 1. During the proceedings, counsel for the platforms argued that Congress designed the CEA to prevent market fragmentation and the "regulatory chaos" of 50 different state requirements 1. The court specifically noted that the sports-related event contracts at issue likely meet the statutory definition of "swaps" under the CEA, describing them as instruments that "just happen to be swaps that people find entertaining and fun" 1.

Why it matters

The injunction prevents Illinois from applying its local gambling and licensing framework to nationwide derivatives exchanges, protecting platforms from immediate state-level enforcement 1. By finding that these contracts are likely swaps, the court reinforces the legal position that prediction markets fall under a single federal regulator rather than a "patchwork of state requirements" 1. This ruling directly addresses the risk of market fragmentation, which the plaintiffs argued would be incompatible with the operation of nationwide exchanges 1. For the platforms involved, including Coinbase, Kalshi, and OG, the decision provides a temporary legal shield to continue offering sports-related event contracts in Illinois while the broader litigation proceeds 1. The court's characterization of these contracts as swaps, despite their entertainment value, provides a judicial basis for treating event-based wagers as sophisticated financial instruments rather than simple gambling 1.

What's next

The preliminary injunction remains in effect while the U.S. District Court for the Northern District of Illinois moves toward a final judgment on the merits of the preemption claim. A full trial or a ruling on summary judgment motions would permanently determine whether the CEA's exclusive jurisdiction clause fully displaces Illinois sports wagering laws. The state of Illinois may file an appeal of this injunction to the U.S. Court of Appeals for the Seventh Circuit. Future rulings in this case will clarify if the "swaps" designation applies to all event-based contracts or remains limited to the sports-related instruments currently at issue. The resolution of this case, alongside conflicting rulings from other circuits, would provide the basis for a potential U.S. Supreme Court review of state versus federal authority over prediction markets.