CFTC Takes New Mexico to Court in Clash Over Who Regulates Prediction Markets

New Mexico is the latest state to face off with the Commodity Futures Trading Commission (CFTC) over control of prediction markets, as the federal regulator moves to stop the state from applying its gaming laws to federally regulated venues. The CFTC said Friday it filed a federal lawsuit seeking to block New Mexico from enforcing state gambling rules against CFTC-registered contract markets. The suit names Governor Michelle Lujan Grisham, Attorney General Raúl Torrez, and members of the New Mexico Gaming Control Board. The conflict traces back to June 4, when New Mexico sued prediction market operator Kalshi. The state alleged Kalshi was offering sports betting to residents without the required license and that its sports event contracts function like traditional sports wagers. New Mexico also claimed the platform allowed users aged 18 to 20 to participate, below the state's minimum gaming age of 21. At the center of the federal case is the CFTC's position that event contracts qualify as "swaps" under US commodities law and fall within the agency's exclusive jurisdiction. The regulator argues that because Kalshi operates as a Designated Contract Market (DCM), transactions executed on such platforms are governed by federal oversight rather than state gaming statutes. The CFTC is asking the court to declare New Mexico measures that restrict transactions on CFTC-regulated DCMs invalid and to issue a permanent injunction preventing state enforcement against prediction market platforms. CFTC Chairman Mike Selig said the agency will continue defending its authority over commodity derivatives markets, arguing state-by-state gaming frameworks conflict with settled law and longstanding judicial precedent. Court records list the matter under a federal docket titled "United States of America v. State of New Mexico." New Mexico is now the eighth state the CFTC has sued after state authorities moved against prediction market platforms. Prior disputes have involved Rhode Island, Wisconsin, Minnesota, New York, Arizona, Connecticut, and Illinois. The growing list of cases adds legal uncertainty for investors and platform operators, as states continue testing whether they can regulate products even when platforms are registered under federal regimes. The legal debate is further complicated by a separate intervention from former SEC and CFTC chair Gary Gensler. In an amicus brief tied to Kalshi's litigation with Ohio authorities, submitted to the Sixth Circuit on Thursday, Gensler argued Congress did not intend the Dodd-Frank Act's swap definitions to reach sports betting-style contracts. He said the commodities swap framework was designed around hedging economic risk, adding that "Sports bets are very rarely, if ever, about hedging." Gensler also told CNBC on Thursday that Congress did not mean to displace state regulation for this category of contracts, calling the answer "categorically 'No.'" The New Mexico dispute hinges on the same core question: whether state gaming laws can be applied to products the CFTC treats as federally regulated swaps cleared or traded on DCMs. As more states escalate enforcement, appellate rulings on whether sports event contracts truly fit the federal swap definition could reshape the regulatory landscape for prediction markets nationwide.