The United States and the Commodity Futures Trading Commission (CFTC) have asked a federal judge to block Rhode Island from enforcing state law against federally regulated event contracts, deepening a growing legal battle over the regulation of prediction markets.
In a motion for a preliminary injunction filed Friday (May 29) in the U.S. District Court for the District of Rhode Island and reviewed by ReadWrite, the federal agencies argued that the contracts at issue fall under the Commodity Exchange Act and are subject to the Commission’s exclusive authority. The request was filed in litigation brought by Kalshi, a CFTC-regulated exchange that offers event-based contracts tied to outcomes such as sports events, elections, weather, and economic indicators.
According to the filing, the event contracts Rhode Island seeks to prohibit are “swaps” under the Commodity Exchange Act. The agencies said transactions involving swaps traded on CFTC-registered Designated Contract Markets are committed by statute to the Commission’s “exclusive jurisdiction.” They further argued that “Rhode Island law is therefore preempted as applied to event contracts traded on DCMs.”
The motion was submitted by the United States and the CFTC as proposed plaintiff-intervenors in Kalshi’s lawsuit against Rhode Island Division of State Lottery Director Mark Furcolo, Attorney General Peter F. Neronha, and Department of Business Regulation Gaming and Athletics Administrator Christina Tobiasz.
The CFTC expands Kalshi challenge against Rhode Island via injunction
The federal agencies have not yet been formally admitted to the case, but they asked the court to consider their injunction request alongside briefing already underway on Kalshi’s own request for preliminary relief.
The filing states that the agencies acted now because of the accelerated schedule already in place, explaining that doing so would provide the court “an opportunity to consider it (and allow other parties to respond) in the course of the existing briefing schedule, rather than creating additional delays.”
While the federal government’s request closely tracks Kalshi’s position, it seeks relief. Kalshi’s lawsuit focuses on its own contracts, while the United States and the CFTC want a ruling that would prevent Rhode Island from enforcing state law against event contracts traded on any federally regulated designated contract market.
The filing states that the proposed intervenors seek “an injunction prohibiting enforcement of state law as to event contracts traded on all DCMs, not simply event contracts traded on Kalshi.”
The dispute began after Kalshi sued Rhode Island officials, arguing that threatened gambling enforcement improperly interfered with a federal regulatory framework. In its complaint, Kalshi alleged that “Rhode Island’s stated intent to prohibit Kalshi from operating intrudes upon the federal framework that Congress established for regulating the trading of derivatives on federally designated exchanges.”
Rhode Island later filed its own lawsuit against Kalshi and Polymarket, claiming the companies were offering what amounted to unlicensed sports wagering. Federal regulators have since characterized the conflict as a jurisdictional dispute between state gaming authorities and the federal derivatives regime.
The CFTC recently warned that state challenges represent “an onslaught of lawsuits seeking to limit Americans’ access to event contracts and undermine the CFTC’s sole regulatory jurisdiction over prediction markets.”
The United States and the CFTC also requested oral argument. A hearing on Kalshi’s preliminary injunction request is scheduled for July 16, and the agencies said they “would welcome the opportunity to participate in that hearing.”
Featured image: CFTC / Canva
