United States Representative Dina Titus (Democrat-Nevada 1) shared on Tuesday that she and two other members of Congress have sent a letter to US Inspector General Christopher Skinner asking for an investigation into the practices of the Commodity Futures Trading Commission. In the correspondence, the representatives stress concerns over the commission’s oversight of prediction market exchanges.
This request represents an expansion of Nevada officials’ scrutiny of and potential enforcement actions against trading on exchanges. The letter discusses actions taken by the Commodity Futures Trading Commission in the state’s dispute with exchanges in her letter to Skinner.
Representatives formally raise concerns about CFTC’s regulation of prediction markets
Titus publicized the letter to Skinner from herself, Rep. Rosa DeLauro (D-Conn. 3), and Rep. Jared Huffman (D-Calif. 2) on Tuesday. In the posting, Titus stated that the Commodity Futures Trading Commission’s (CFTC) “recent actions raise significant concerns regarding statutory compliance, federal/state/tribal balance, and resource allocation.”
The letter calls for the Inspector General to look into six aspects of the CFTC’s activity governing prediction market trading.
- analysis of the CFTC’s actions on state regulatory frameworks and tribal sovereignty
- assessment of the CFTC’s allocation of staff and financial resources toward litigation activities
- assessment of the legal and statutory basis for the CFTC’s assertion of exclusive jurisdiction over sports-related event contracts
- audit of the decision-making process behind the withdrawal of the 2024 proposed rulemaking and the 2025 staff advisory
- evaluation of the consistency of the CFTC’s litigation strategy
- review of the consumer protection implications associated with the expansion of sports event contracts on federally regulated platforms
The US Office of the Inspector General (OIG) is responsible for reviewing other federal government agencies in terms of their compliance with Congressional mandates. The OIG is also required to inform Congress of its audit results.
While the US Code does not mandate that the OIG fulfill requests from Congress members exactly as they transmit them, standard practice has been to transmit a response explaining what actions the OIG will take to address the concerns of members of Congress at minimum. If the OIG does move forward with an audit as specified in the letter, it could amplify Nevada’s status as a “thorn in the side” of prediction market exchanges.
Request calls CFTC’s litigatory activity into question
The letter from DeLauro/Huffman/Titus points out that “the CFTC has filed a series of lawsuits against multiple states” to “directly challenge state enforcement actions against entities offering contracts tied to the outcomes of sporting events.” It adds that such litigation “marks a significant escalation in its (the CFTC’s) interpretation of its federal authority and runs counter to the prior assurances from Chair Michael Selig that the Commission would defer to the courts on matters related to sports event contracts.”
While the CFTC has not sued any Nevada officials, it has intervened in a lawsuit between Kalshi and Nevada officials at the US Ninth Circuit Court of Appeals. Nevada officials so far have been successful in their court cases against Kalshi and other prediction markets.
The Ninth Circuit has denied Kalshi’s request for injunctive relief against enforcement actions under Nevada gambling laws. In state court, Nevada officials have secured court orders demanding that Polymarket and others stop accepting trades from people in the state.
Kalshi can still appeal the Ninth Circuit’s decision on the motion for an injunction against Nevada to the US Supreme Court, but the CFTC’s legal activity has been widespread across the country. That litigation may resolve before the OIG submits a report to Congress on the CFTC’s legal activity.
Quick resolution to lawsuits and OIG investigation unlikely
OIG investigations can take months depending on their intensity and scale. During that time, legal disputes between exchanges or the federal government and state officials will move forward.
The timeline for that litigation ultimately depends on how quickly parties submit petitions for review to the US Supreme Court and whether the court agrees to review the case(s). The defendants in a lawsuit that Kalshi filed against New Jersey officials have already expressed that they plan to file such a petition.
Similar requests could emerge in the coming months from litigation currently before multiple federal appellate courts. At that point, a prominent question will be whether the Supreme Court will adjudicate the dispute and settle the legal issues before the OIG files a report on the CFTC with Congress, potentially altering the ramifications of the OIG findings.
At minimum, members of Congress have raised concerns about the CFTC with the OIG. The coming months will demonstrate whether a potential OIG audit will impact the CFTC’s litigation and regulatory activity.
