CFTC sues New Mexico over prediction market jurisdiction

New Mexico is the latest US state to be pulled into the Commodity Futures Trading Commission’s legal fight for its jurisdiction over prediction markets after the state sued Kalshi for allegedly offering illegal sports betting.

The CFTC said on Friday that it sued New Mexico Governor Michelle Lujan Grisham, state Attorney General Raúl Torrez, and members of the New Mexico Gaming Control Board in federal court “to block the state’s efforts to apply state gaming laws against CFTC-registered contract markets.”

New Mexico sued Kalshi on June 4, arguing the company is offering sports betting to residents without a license and that its sports event contracts function the same as traditional sports bets.

The state also claimed Kalshi allowed those aged between 18 and 20 to use the platform, below New Mexico’s minimum gaming age of 21.

New Mexico is the eighth state that the CFTC has sued after state authorities had taken enforcement action against prediction market platforms, with Rhode Island, Wisconsin, Minnesota, New York, Arizona, Connecticut and Illinois also facing lawsuits from the regulator.

In its complaint against New Mexico, the CFTC claimed that event contracts are “swaps” under federal commodities laws, and Kalshi is a Designated Contract Market (DCM) under the “exclusive jurisdiction” of the CFTC.

“New Mexico’s attempt to prevent a CFTC-regulated DCM from offering CFTC-approved financial products intrudes on the exclusive federal scheme Congress designed to oversee United States commodity derivatives markets,” the CFTC argued.

“New Mexico is the latest state seeking to nullify black letter law and decades of judicial precedent by imposing state gaming laws on federally regulated derivatives exchanges subject to the CFTC’s exclusive jurisdiction,” CFTC Chairman Mike Selig said in a statement.

Source: Mike Selig

“The CFTC has the expertise and responsibility to protect its exclusive jurisdiction over commodity derivatives, and that’s exactly what we’ll continue to do,” he said.

The CFTC asked the court to rule that New Mexico state laws that would apply to transactions on CFTC-regulated DCMs are invalid and for a permanent injunction prohibiting the state from taking action against prediction market platforms.

Gary Gensler doubts CFTC claim over sports bets

Gary Gensler, a former chair of the Securities and Exchange Commission and the CFTC, also weighed in on the CFTC’s legal battle with the states, casting doubt on the federal regulator’s claim that it has authority over sports event contracts.

In an amicus brief filed to the Sixth Circuit on Thursday in Kalshi’s fight with Ohio’s authorities, Gensler argued that the Dodd-Frank Act, passed in 2010 in response to the 2008 financial crisis to regulate swaps, was not meant to encompass sports event contracts.

Related: CFTC proposes framework favoring sports event contracts over gambling

“Congress did not include sports betting contracts within the statutory Dodd-Frank definition of swap,” Gensler argued. He added that sports event contracts do not fit the purpose or language defining a swap under commodities laws, “which focus on hedging economic risk.”

Gary Gensler appearing on CNBC to discuss his amicus brief. Source: YouTube

“Sports bets are very rarely, if ever, about hedging,” Gensler argued.

Gensler told CNBC on Thursday that the question “at the core of this issue is did Congress in 2010 say, ‘No, none of the states can regulate this’ — it's going to this little small agency that I once was proud to run — and the answer is categorically ‘No.’”

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