CFTC Sues Arkansas to Block Kalshi Crackdown and Shield Prediction Markets

The Commodity Futures Trading Commission (CFTC) sued Arkansas and Attorney General Tim Griffin, asking a federal judge to block the state’s case against Kalshi and prevent enforcement against other federally regulated prediction market businesses.

The lawsuit, filed Thursday in the Eastern District of Arkansas and announced by the CFTC Friday, argues that Arkansas is using state gambling law to interfere with markets under exclusive federal jurisdiction. It seeks a declaration that federal law preempts the state’s restrictions, along with preliminary and permanent injunctions.

The filing follows Griffin’s Nov. 4 lawsuit accusing Kalshi of operating an illegal gambling platform and misleading Arkansas consumers about the legality of its products. The state is seeking an injunction, restitution, damages, unpaid taxes and civil penalties.

Arkansas is now the 11th state the CFTC has sued to defend its claimed authority over prediction markets. The agency says it has also filed friend-of-the-court briefs in four federal appeals courts and one state supreme court.

Federal government seeks protection beyond Kalshi

Kalshi is the immediate target of Arkansas’ enforcement case, but the federal government is asking for a broader shield.

The complaint seeks to prevent Arkansas from investigating or enforcing state law against CFTC-regulated entities, their affiliates and partners over transactions listed, offered or executed on federally regulated designated contract markets.

A ruling granting the requested relief could reach beyond Arkansas’ existing case against Kalshi, although its actual scope would depend on the language of any court order.

Arkansas says the contracts are illegal gambling

Griffin’s state lawsuit names KalshiEX LLC and Kalshi Inc. and was filed in Independence County Circuit Court. It brings claims under the Arkansas Deceptive Trade Practices Act and for unjust enrichment. 1562

Arkansas alleges that Kalshi offers unlicensed real-money wagering on sports, elections and entertainment without meeting the licensing, oversight and tax requirements imposed on lawful gambling operators. The state also challenges representations that the products are legal for Arkansas customers.

The potential penalties are a central part of the federal government’s response. The Arkansas Deceptive Trade Practices Act allows civil penalties of up to $10,000 per violation. The federal complaint argues that applying penalties on a per-violation basis could produce a total far above Kalshi’s Arkansas revenue.

“If Arkansas seeks civil penalties on a per-violation basis, the penalties would dwarf Kalshi’s income from its activities in Arkansas and could reach the hundreds of millions of dollars,” the complaint states.

CFTC argues federal commodities law displaces state restrictions

The CFTC’s argument starts with the contracts' classification.

The federal plaintiffs contend that the event contracts Arkansas is targeting qualify as swaps under the Commodity Exchange Act. They point to contracts whose payments depend on whether a specified event occurs, as well as their binary structure.

Because those contracts trade on a designated contract market, the government argues, they fall within the CFTC’s exclusive jurisdiction. On that theory, Arkansas cannot use gambling and consumer-protection laws to prohibit the same federally regulated transactions. The complaint asserts express, field and conflict preemption, different legal grounds for arguing that federal law displaces the state’s rules.

“As prediction markets continue to prove their value in being useful for risk management and providing the public with valuable information about the future, Arkansas seeks to shut down event contracts ranging from sports and politics to other important world events,” CFTC Chairman Michael Selig said.

“The CFTC will continue to defend its sole jurisdiction over these federally regulated markets as granted by Congress under the Commodity Exchange Act,” he added.

National access policy is now part of the court fight

The complaint also invokes the CFTC’s recent interpretation of impartial-access requirements.

The federal government argues that forcing exchanges to exclude people in Arkansas would conflict with the national market framework the agency administers. Its broader concern is that state-by-state restrictions would leave federally regulated exchanges answering to as many as 50 separate regulators rather than a uniform federal system.

Under the CFTC’s theory, an Arkansas-only block would itself interfere with federal requirements. Under Arkansas’ theory, federal exchange registration does not authorize a company to offer gambling products that state law prohibits.

Separate operator lawsuits are already pending

The federal government’s intervention adds another proceeding to an expanding Arkansas dispute.

Polymarket US and Crypto.com-backed OG.com filed separate federal lawsuits this week seeking protection against potential enforcement under Arkansas gambling laws.

Unlike those preemptive challenges, the new federal government case directly targets an enforcement action Arkansas has already brought against Kalshi.