Headline: CFTC orders Kalshi to keep trading as state bans carve up prediction markets The Commodity Futures Trading Commission has stepped into the escalating legal fight over prediction markets, ordering Kalshi to keep operating under federal rules even as state authorities try to curtail large swaths of its business. What happened - On Aug. 11 the CFTC invoked emergency authority after Kalshi warned the agency that a state court order could create a market emergency. The federal regulator directed the CFTC-registered exchange to continue operating in accordance with the Commodity Exchange Act’s core principles. - The move follows a July 31 lawsuit from New York Attorney General Letitia James, who asked a state court to halt Kalshi’s event contracts and sought more than $36 billion in restitution, disgorgement and penalties. New York alleges Kalshi runs an unlicensed gambling operation and has allowed some under-21s to trade contracts that the state says are sports wagers. - The CFTC’s Office of General Counsel submitted its emergency directive as supplemental authority to U.S. District Judge Lorna Schofield in the Southern District of New York, where the federal government is challenging New York’s attempt to enforce its laws against Kalshi. State actions and conflicting court orders - Washington: King County Superior Court Judge John McHale issued a preliminary injunction restricting seven categories of Kalshi contracts — covering sports, elections, politics, entertainment, culture, technology and science — and barred advertising those products to Washington residents. The judge left contracts tied to commodities, climate, economics and finance available. - The order required a basic IP-and-residency system by Aug. 19 and a multi-source geofencing solution by Sept. 2. Reports say missing the Sept. 2 deadline could trigger penalties of $120,000 per day, subject to the court’s discretion if Kalshi files an affidavit explaining delays. - Kalshi’s request to pause the injunction during an appeal was denied; the company may seek relief from the Washington Court of Appeals. - New York: U.S. District Judge Analisa Torres earlier rejected Kalshi’s request to block New York from enforcing its laws against sports-related contracts, finding the company had not established federal law preempted the state. - Minnesota: Conversely, a federal judge (Judge Katherine Menendez) temporarily blocked Minnesota’s ban before it took effect on Aug. 1, protecting CFTC-registered designated contract markets including Kalshi and Polymarket US while litigation proceeds. Menendez said plaintiffs were likely to succeed on part of a federal preemption argument, but she did not rule that every event contract is necessarily a federally protected swap. - Across the country, court results are mixed: some states (Massachusetts, Michigan, Nevada, New York and Washington) have at least partially succeeded in imposing restrictions, while federal courts in other jurisdictions have blocked state enforcement. Legal positions and next steps - Kalshi insists its contracts are regulated derivatives and that its CFTC registration places it under exclusive federal oversight. The company has asked the Southern District of New York to pause proceedings while it pursues an appeal at the Second Circuit; defendants reportedly did not oppose delaying discovery while the appeal is unresolved. - State attorneys general argue that Congress did not strip states of traditional authority over gambling and that calling products “event contracts” does not exempt them from state gambling laws. - Sports-betting attorney Daniel Wallach described the CFTC’s directive as effectively compelling Kalshi to operate despite state court restrictions; states could respond by challenging the federal account, raising defenses like “unclean hands,” or seeking injunctions against the commission. Regulatory ripple effects for the market - The patchwork of rulings means access to Kalshi’s markets varies by user location: some event markets are available in certain states and blocked in others, forcing exchanges to implement geofencing and other compliance measures. - The CFTC has also warned regulated platforms about presentation and marketing: operators should avoid American-style betting odds displays and must ensure advertising and solicitation comply with derivatives law. - Separately, the New York City Council is probing alleged deceptive advertising by Coinbase, Kalshi, Polymarket and Gemini, with particular attention to how prediction-market products are promoted to city residents. Why it matters for crypto and prediction markets - The dispute highlights a broader regulatory tug-of-war between federal oversight of swaps and states’ traditional control over gambling — a core issue for crypto-native prediction markets and decentralized applications that offer event-based trading. - Outcomes of these cases will shape whether platforms can rely on CFTC registration to preempt state gambling laws, or whether states can impose licensing and consumer-protection limits that force exchanges to geo-block or alter product offerings. Bottom line Kalshi remains operational under a CFTC emergency order, but the company faces multiple state enforcement actions and uneven court rulings that already have forced partial product rollbacks and geofencing requirements. The legal battle over federal preemption versus state gambling authority will determine the future landscape for prediction markets — and how readily U.S. users can access event-based contracts. Stay tuned as appeals and parallel suits progress. Read more AI-generated news on: undefined/news