Prediction markets face legal heat
U.S. prediction‑market firms have stepped up lobbying as regulators and states press legal challenges that could recast event contracts as gambling or insider trading. Kalshi and Polymarket have increased Washington outreach while Kalshi is fighting state enforcement actions — including a suit to block Montana and proposed fines in Ohio — as courts and regulators weigh whether these products are legal betting or tradable contracts (cnbc.com, ktvh.com).
Prediction markets are drawing a new legal test in the United States as states, Congress and federal regulators argue over whether they are trades or bets. (cnbc.com) These markets let users buy contracts tied to an event outcome, usually priced from 1 cent to 99 cents, with the price acting like an implied probability. Kalshi and Polymarket list contracts on elections, sports, weather and geopolitics, and CNBC reported Kalshi holds about 90% of the United States market, citing a Bank of America note dated April 8. (pbs.org, cnbc.com) The immediate fight is over who gets to police them. Kalshi sued Montana after the state sent a second cease-and-desist letter on April 6, and Ohio regulators moved to fine Kalshi $5 million over what the state called unlicensed sports gaming. (missoulacurrent.com, dispatch.com) Kalshi is also trying to shape the debate in Washington. CNBC reported the company recently opened a Washington office, launched an ad campaign saying “We ban insider trading” and “We operate under U.S. law,” and has worked with lawmakers on legislation aimed at insider trading. (cnbc.com) Congress is now examining whether existing market-abuse rules fit these products. A Congressional Research Service legal brief published in March said the Commodity Futures Trading Commission issued a February 25, 2026 advisory on insider trading in prediction markets and discussed two recent Kalshi enforcement actions. (congress.gov) Lawmakers are also drafting narrower rules for who can trade. House bill H.R. 8076, introduced in the 119th Congress, would bar covered government officials from trading on prediction markets. (congress.gov) The legal backdrop goes back to Kalshi’s election-contract case. In October 2024, the United States Court of Appeals for the District of Columbia Circuit refused to pause a lower-court ruling for Kalshi after the Commodity Futures Trading Commission argued its congressional-election contracts were “gaming” and contrary to the public interest. (law.justia.com) At the same time, the Commodity Futures Trading Commission has been weighing broader event-contract rules. In May 2024, the agency proposed amendments to Regulation 40.11 that would further specify which event contracts are barred as contrary to the public interest, including contracts involving political contests. (cftc.gov, cftc.gov) The federal government’s position has shifted toward backing the platforms against state crackdowns. The Associated Press reported in February that the Trump administration, through Commodity Futures Trading Commission Chairman Michael Selig, supported Kalshi and Polymarket in fights with states that want to treat the products as gambling. (pbs.org) The companies are making different arguments as scrutiny rises. Kalshi is emphasizing federal registration and surveillance, while Polymarket deputy chief legal officer Olivia Chalos told CNBC the company is focused on “working with our relevant regulators and law enforcement” to draw lines and pursue bad actors. (cnbc.com) What happens next will likely be decided in several places at once: federal courts, state enforcement cases and Congress. The core question is the same in each venue — whether an event contract is a financial instrument under federal commodities law or a wager that states can ban. (missoulacurrent.com, dispatch.com, cftc.gov)
