Kalshi Sues Minnesota to Block First US Felony Ban on Prediction Markets

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Prediction market platform Kalshi has filed a federal lawsuit to block a first-in-the-nation Minnesota law that would make operating or advertising prediction markets a felony, escalating a nationwide fight over who regulates the fast-growing sector. Kalshi Sues Minnesota to Block First US Felony Ban on Prediction Markets Key Takeaways Minnesota’s First-in-Nation Felony Ban Kalshi, a federally regulated prediction market where users trade contracts on the outcome of real-world events, asked a federal court to strike down Minnesota’s SF4760, a law it says would criminalize its business in the state. Governor Tim Walz signed the measure on May 18, and it is set to take effect on August 1, 2026, making Minnesota the first U.S. state to treat the operation and advertising of prediction markets as a felony. The lawsuit, filed on May 28, argues the ban cannot stand because prediction markets are not gambling products but federally regulated derivatives. Kalshi contends that Minnesota is attempting to outlaw an activity that Congress placed under exclusive federal oversight. At the heart of Kalshi’s case is the claim that the state law intrudes on the authority of the Commodity Futures Trading Commission (CFTC), the federal agency that regulates derivatives markets. Kalshi argues that its event contracts qualify as swaps under the Commodity Exchange Act, the federal statute that grants the CFTC exclusive jurisdiction over such instruments, and that a state cannot override that framework by reclassifying them as gambling. The company also says the ban violates the First Amendment by restricting its ability to advertise a lawful financial product. Together, the arguments frame Minnesota’s law as both an overreach into federal territory and an unconstitutional limit on commercial speech. The CFTC Joins the Fight Kalshi is not litigating alone. The CFTC filed its own federal lawsuit against Minnesota less than 24 hours after Walz signed the bill, asking a court for a preliminary injunction to stop the law from taking effect before the dispute is resolved. The agency argues that Congress granted it exclusive oversight of event contracts and that state gambling statutes cannot displace that authority. A ruling against Minnesota would reinforce the position that prediction markets answer to Washington, not state capitals; a ruling for the state could embolden dozens of others weighing similar bans. Minnesota is only the latest battleground as Kalshi and its rivals have faced a wave of state-level pushback over the past year, with regulators and courts split on whether their contracts are legitimate derivatives or thinly disguised betting. Bitcoin.com News has reported that Washington State sued Kalshi over alleged illegal online betting, while Arizona challenged the platform’s federal status with unlicensed gambling charges. The CFTC has mirrored Kalshi’s courtroom strategy elsewhere, suing New York and Wisconsin over comparable restrictions. The fight has also drawn in other crypto-linked firms, with Coinbase suing three states as the federal-versus-gambling clash widened, and 38 attorneys general backing a Massachusetts lawsuit against Kalshi. Outcomes have varied as a Nevada court ruled that Kalshi’s event contracts align with state gambling laws, even as New Jersey lost a bid to shut down the platform’s sports contracts on appeal. What Comes Next With the August 1 effective date approaching, the immediate test is whether a court grants the CFTC’s requested injunction and pauses Minnesota’s law before it can be enforced. A delay would buy Kalshi time and keep the platform operating in the state while the broader question works through the courts. That said, the deeper issue is unlikely to be settled in a single ruling, and until an appeals court (or Congress) draws a clear line between federally regulated event contracts and state-governed gambling, prediction market operators will keep fighting the same battle state by state, with Minnesota now at the front of the line.

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