Utah Becomes 10th State to Be Sued by CFTC: Expert Panel

Earlier this week, the US Commodity Futures Trading Commission (CFTC) sued Utah to stop state officials from enforcing strict anti-gambling laws against federally registered prediction market platforms like Kalshi.

https://x.com/CFTC/status/2115125987096613311

Utah Attorney General Derek Brown filed criminal charges against Kalshi, including a Class A misdemeanor, a second-degree felony, and 12 third-degree felonies.

Utah is now the 10th state the CFTC has taken legal action against in its ongoing battle to maintain exclusive federal oversight over online prediction markets. Legal experts note the situation, overall, is “unusual.”

“I spent two years as a CFTC trial attorney, and the agency I knew sued platforms for operating without registration. It did not sue states to protect registrants. Ten states in a few months is a policy choice, not a legal reflex,” Braden Perry, co-founder and partner at Kennyhertz Perry, LLC, told DeFi Rate.

CFTC’s actions deemed “unprecedented”

In April, the CFTC sued Arizona, Connecticut, and Illinois, challenging the states’ actions against “CFTC-registered designated contract markets.”

Arizona filed criminal charges against Kalshi, while Connecticut and Illinois had moved against sports-related contracts through cease-and-desist letters and administrative orders. It later sued:

• Kentucky

• Minnesota

• New Mexico

• New York

• Rhode Island

• Wisconsin

The CFTC itself called its first round of lawsuits an “unprecedented measure,” and experts DeFi Rate has spoken with agree it breaks with the agency’s past behavior.

“They have never sued states directly, so this tactic is literally unprecedented for them,” said Peter Sanchez Guarda, a former CFTC Special Counsel in the markets participants division and founder and principal consultant at TurnKey Family Office.

Guarda added that when disputes over the CFTC’s jurisdiction have come up in the past with agencies such as the US Securities and Exchange Commission (SEC) or the US Federal Energy Regulatory Commission (FERC), the CFTC filed Amicus briefs in private litigants' lawsuits but never sued directly.

He believes the agency wants “as many circuits involved as possible” to raise the odds of the Supreme Court hearing a case this term.

Felix Shipkevich, special professor of law at Hofstra University, explained the CFTC’s actions as a political decision that prediction markets are “a national financial product” instead of gambling products.

“The CFTC has essentially decided that prediction markets are the next big growth story in derivatives and that it would rather fight the states now than let a patchwork harden.”

The Utah debate

Utah’s lawsuit against Kalshi accuses the platform of a “brazen pattern of unlawful conduct" that has inflicted serious harm on the State and its residents.

“Kalshi runs an online casino in Utah and calls it a prediction market. That violates Utah law,” Brown said in a statement.

The CFTC’s complaint argues that its “comprehensive federal regulatory scheme expressly and impliedly preempts state gambling law as applied to event contracts,” describing sports contracts as legal financial products because their outcome carries a “financial, economic, or commercial consequence”.

Kennyhertz Perry’s Perry noted the CFTC is knowingly “fighting uphill in Utah”. The governing body is not arguing that Utah cannot ban gambling; it is arguing that prediction markets are swaps traded on a designated contract market.

In August, US District Judge Robert J. Shelby ruled that the Commodity Exchange Act does not shield Kalshi from Utah's anti-gambling laws, yet a decision on whether Kalshi’s sports contracts are swaps was never made.

“That is the opening. The CFTC will say the swap question is the whole case and it was left unanswered. The agency was also not a party to the Kalshi case, so the judgment does not bind it. Still, same district, same statute, same facts,” Perry said.

If states win, sports contracts could become a state-by-state product

If the court sides with the states, experts predict the impact will not be felt evenly.

According to Perry, if a court rules that sports contracts are not swaps, they will become a state-by-state product; meanwhile, election, economic, and weather contracts will remain federal.

Technology isn't the main problem.

“These platforms sell one national pool of liquidity. Split it 50 ways and pricing gets worse, volume drops, and market makers lose interest. Utah is the hardest case. You cannot get licensed in a state with no license to give,” Perry said.

Dr. Jordan Knecht, head of strategic integrations at Kresus, agreed. Platforms could adopt geographic restrictions “similar to what crypto did early on,” along with state-specific eligibility rules and extra identity verification, tools that already exist in traditional finance and online gaming.

“Technologically, it’s absolutely feasible. Economically and operationally, that is where it becomes significantly more complicated,” he said.

Compliance and operational costs would hit smaller platforms hardest, as they may struggle to absorb them, Dr. Knecht added.

More suits might follow

Hofstra University’s Shipkevich expects “more of these suits in both directions, with states suing the platforms and the CFTC suing the states,” until the U.S. Supreme Court decides whether a sports-event contract is a swap or a bet.

Kennyhertz Perry’s Perry also said to watch the Supreme Court. New Jersey and Robinhood have both filed petitions, he said, and the Third and Ninth Circuits have split on whether the products are swaps or sports bets.

“If the Court takes a case, the state fights pause in practice. If it passes, expect more suits in both directions,” he said.

For platforms, Shipkevich said the main challenge is defending their business model in more than a dozen courts at once, “and every new adverse ruling gives the next state a roadmap.”

Perry made a related point, noting that the swap question remains open, so every state with a gambling law is a live risk.

Meanwhile, according to Shipkevich, the CFTC's challenge is credibility. The agency is asking courts to accept that “Congress quietly federalized gambling in a 2010 financial reform bill, and so far, the judges who have looked at that argument closely are not buying it.”