CFTC Sues Kentucky to Protect Federal Control of Prediction Markets

Federal regulators argue that Kentucky’s aggressive stance against platforms like Kalshi and Polymarket contradicts the Commodity Exchange Act. The agency contends that these event contracts are swaps, not gambling products, and thus fall under federal oversight rather than state jurisdiction. The lawsuit specifically targets Governor Andrew Beshear, Attorney General Russell Coleman, and the state’s gaming commission.

A central point of contention involves Kentucky’s 14.25% excise tax on transaction fees and contract values. The CFTC alleges this levy creates an impossible economic environment for federally authorized exchanges. This state-level taxation is currently being challenged in a separate lawsuit filed by a coalition of firms, including Crypto.com and Kalshi, who argue the tax unfairly discriminates against regulated markets.

Kentucky authorities maintain that these platforms operate without necessary state licenses and lack required consumer safeguards for sports wagering. While the state pushes for local oversight, the CFTC maintains that firms like Coinbase, Robinhood, and Webull, which partner with these exchanges, already adhere to comprehensive federal standards. This ongoing jurisdictional battle continues to escalate, with the federal government now actively litigating against states ranging from New York and Illinois to New Mexico and Rhode Island.