The federal government has stepped into Kalshi’s legal fight with Rhode Island, arguing the state cannot use its gambling laws to restrict federally regulated prediction market contracts. The move widens the dispute over who controls event-based financial products tied to sports and other outcomes.
The United States and the Commodity Futures Trading Commission filed a proposed complaint in the U.S. District Court for the District of Rhode Island, asking to join Kalshi’s lawsuit and stop state officials from enforcing gambling laws against federally regulated exchanges. According to the filing, Congress granted the CFTC exclusive authority over commodity futures, options and swaps traded on federally regulated exchanges, leaving no room for conflicting state regulation.
Rhode Island’s enforcement action, filed on May 21, 2026, targets Kalshi and QCX LLC, which operates Polymarket. According to the proposed complaint, the state alleges that “Kalshi and Polymarket facilitate gambling (specifically sports wagering) in Rhode Island by allowing bettors to place wagers on the outcome of sports matches and individual player performances, under the guise of ‘trading’ ‘event contracts’ on ‘prediction markets.’”
State officials are seeking an injunction preventing the companies from offering sports-related event contracts in Rhode Island. Kalshi previously argued 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.”
Federal regulators maintain those products are financial derivatives, not gambling. The filing says the contracts are “swaps” under the Commodity Exchange Act and are traded on CFTC-regulated designated contract markets, making them subject to the Commission’s exclusive jurisdiction. The agencies argue Rhode Island law is preempted when applied to those federally regulated products.
Unlike Kalshi’s lawsuit, which focuses on its own business, the federal government is seeking relief covering every CFTC-regulated designated contract market. The filing states 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 complaint also details the Commission’s oversight, noting it regulates thousands of self-certified event contracts, has approved exchanges including Kalshi, Polymarket, Gemini Titan and Nadex, brings enforcement actions, maintains information-sharing agreements with Major League Baseball and the National Hockey League, and is considering additional rulemaking.
Federal officials argue Rhode Island’s actions interfere with the government’s “sovereign, legally protected interest in enforcing federal law.” They also point to recent rulings, including a Third Circuit decision and injunctions issued in other states, that temporarily blocked state gambling enforcement against CFTC-regulated exchanges.
The case is part of a national conflict involving Arizona, Connecticut, Illinois, Minnesota, New York and Wisconsin, where states have challenged prediction markets. A hearing on Kalshi’s request for a preliminary injunction is scheduled for July 16, and the United States and the CFTC have asked to participate in oral argument.
Featured image: CFTC / Canva
