Federal Regulators Sue Utah Over Crackdown on Kalshi Prediction Markets

The federal government filed a lawsuit against Utah to stop the state from barring Kalshi from offering its prediction markets to residents, escalating a high-stakes jurisdictional battle over financial event contracts. The legal action, submitted on October 26 and announced the next day by the Commodity Futures Trading Commission (CFTC) and the Department of Justice, directly challenges Utah's enforcement against the trading exchange.

Federal regulators contend that Kalshi's contracts qualify as swaps, a category of financial derivatives governed by the Commodity Exchange Act. The CFTC asserts that Congress granted it exclusive jurisdiction over these transactions, meaning state gambling statutes cannot be applied to prohibit them. CFTC Chairman Michael Selig emphasized that event contracts serve legitimate financial functions, stating, "Congress entrusted the CFTC to be the federal regulator with sole responsibility to oversee these markets." Selig added that these products help participants manage risks, invest, and obtain market-based information about future outcomes.

The federal lawsuit was launched in response to an action brought on October 20 by Utah Attorney General Derek Brown. Brown filed suit against Kalshi entities and two Susquehanna trading firms that trade on the platform, arguing that contracts based on elections, sports, and other occurrences constitute unlawful gambling under state law. Utah is seeking to halt the offering of various event contracts to its citizens and recover revenues it claims the firms generated through illegal betting.

The new federal complaint follows an earlier setback for Kalshi in the court system. On August 4, U.S. District Judge Robert Shelby granted summary judgment to the state of Utah, determining that federal commodities legislation did not override state gambling statutes. Kalshi subsequently sought an emergency injunction pending an appeal, but the Tenth Circuit Court of Appeals denied that request on September 8.

With this latest legal filing, Utah has become the tenth state to face court action from federal regulators over state-level crackdowns on prediction markets. The protection sought by the federal government extends beyond the primary platform to encompass regulated businesses' partners and affiliates, including market makers like the Susquehanna entities named in Utah's state complaint.

The clash comes as Kalshi continues to expand its offerings across both sports and political forecasting. Alongside sports-related trading, Kalshi contracts have increasingly functioned as public gauges for competitive elections. In Ohio's special U.S. Senate election, for instance, Kalshi recently priced Democrat Sherrod Brown at a 68 percent chance of victory against Republican Jon Husted at 32 percent. The ongoing federal lawsuit will determine whether state authorities or federal regulators hold final sway over such trading operations.