A federal judge in Minnesota on Monday blocked the state’s attempt to ban prediction markets just days before the law was set to take effect Saturday.
The preliminary injunction comes as the Justice Department, the Commodity Futures Trading Commission, Kalshi, and Polymarket challenge the law in court, arguing that federal law preempts the state’s gambling restrictions.
U.S. District Judge Katherine Menendez, an appointee of former President Joe Biden, ruled that the plaintiffs “have met their burden to show they are likely to succeed, at least in part,” on their claims that the Commodity Exchange Act preempts the Minnesota law and that they would suffer irreparable harm if it were allowed to take effect.
“Specifically, it appears that whether the Minnesota statute is expressly preempted turns on whether the state law attempts to regulate trades in event contracts that qualify as ‘swaps’ within the meaning of the CEA,” Menendez wrote.
Under the Commodity Exchange Act, or CEA, and Dodd-Frank regulations, a swap is a contract in which two parties exchange cash flows based on an underlying asset, rate, or index. The category includes interest rate swaps, currency swaps, total return swaps, and credit default swaps.
Menendez said “there are several examples of event contracts hosted by Kalshi and Polymarket US” that fit that definition because they involve events with “clear potential economic, financial, or commercial consequences” that are “neither remote nor attenuated.”
The judge also noted that Kalshi and Polymarket are designated contract markets, giving the CFTC exclusive authority to regulate transactions involving those swaps.
Minnesota Attorney General Keith Ellison criticized the ruling Monday, saying the state “respectfully disagrees” with the preliminary injunction and arguing that the proper “status quo” is one that prevents “predatory gambling apps” from proliferating.
The Minnesota case is the latest in a broader legal battle over whether states can regulate prediction markets. The CFTC has filed legal challenges against six other states — Arizona, Connecticut, Illinois, New York, Rhode Island, and Wisconsin — over cease-and-desist orders, lawsuits, and criminal charges. The agency has also intervened in related cases in Massachusetts, Nevada, and Ohio without filing separate lawsuits.
Prediction market lawsuits set stage for major court battles
CFTC Chairman Michael Selig has previously argued that prediction markets fall under the agency’s exclusive federal jurisdiction.
“States cannot circumvent the clear directive of Congress,” Selig said in an April statement announcing the agency’s lawsuit against Wisconsin. “Our message to Wisconsin is the same as to New York, Arizona, and others: if you interfere with the operation of federal law in regulating financial markets, we will sue you.”