Commodity Futures Trading Commission (CFTC) Chair Michael Selig said the escalating battle over prediction markets — platforms where traders buy and sell contracts on the outcomes of real-world events — has moved beyond a jurisdictional dispute and now puts company executives at risk of jail. Speaking in a November 13 CNBC interview at Cantor Convergence, he called the criminal charges brought by states “really egregious.”

Selig argued that prediction-market platforms provide legitimate products in accordance with federal regulations. State authorities, by contrast, contend that sports-event contracts amount to gambling contracts. The debate hinges on the conflict between federal derivatives law, which the CFTC administers, and the gambling laws imposed by states.

From a jurisdiction fight to a fight over jail

Selig said a regulatory dispute should not expose executives to imprisonment: “That’s not something that should be at the risk of going to jail.”

In October, Utah filed felony charges against Kalshi, a leading prediction-market platform, and its two cofounders. No one has been convicted, but the charges carry possible jail time, and prosecutors had not specified penalties. Selig wants the Supreme Court to settle the regulatory question.

The CFTC takes Louisiana to court

The CFTC has answered state enforcement with lawsuits of its own. On November 13, it sued Louisiana after a state judge ordered more than 30 companies tied to CFTC-regulated derivatives to stop operating in the state. The agency said the order came without notice or a hearing.

Louisiana is the 12th state the CFTC has sued over its jurisdiction. The regulator has also filed briefs in four federal appeals courts and one state supreme court. Separately, the Justice Department and the CFTC challenged Arkansas Attorney General Tim Griffin’s action against Kalshi.

44 states say the CFTC is overreaching

In a July letter, 44 state attorneys general — the chief legal officers of their states — argued that Congress never gave the agency power to regulate sports bets as derivatives, saying sports wagers lack the hedging or price-discovery role of derivatives.

States also have tax revenue to protect. The National Conference of State Legislatures cited an American Gaming Association estimate that prediction markets may have diverted betting activity that would otherwise have generated more than $1 billion in state sports-betting taxes.

Why this is headed to the Supreme Court

The dispute over federal and state authority has divided the appeals courts. After the Third Circuit sided with Kalshi, New Jersey officials petitioned the Supreme Court, asking the justices to decide whether the Dodd-Frank Act — the 2010 federal law that reshaped derivatives regulation — prevents states from enforcing gambling laws against sports contracts offered on CFTC-registered exchanges.

The Ninth Circuit ruled the other way, while the Sixth Circuit denied interim relief but stopped short of deciding the underlying legal question. When federal appeals courts answer the same federal question differently, resolving that split is among the most common reasons the Supreme Court agrees to hear a case. Stanford law professor Joe Grundfest expects the Supreme Court to take up the dispute, though the justices have not agreed to hear the case. Kalshi’s response is due on December 7.

What’s at stake for platforms and traders

The uncertainty hangs over a sizable market. As of November 14, DefiLlama tracked $6.24 billion in seven-day prediction-market trading volume across 138 protocols, with Kalshi accounting for $4.54 billion and Polymarket $1.33 billion. The figures cover only the platforms DefiLlama monitors.

Conflicting state rules could raise compliance costs, restrict market access, and fragment trading liquidity. Britain offers a comparison: prediction-market products generally appear to require betting-intermediary licences, depending on their structure, while financial instruments face separate oversight, as Norton Rose Fulbright explains.

Political scrutiny could add further pressure. Cryptopolitan reported that Senator Elizabeth Warren plans closer oversight of prediction markets if she becomes Senate Banking Committee chair in January. Her appointment remains unconfirmed.

Despite the legal challenges, Selig remained firm about the CFTC’s authority: “Our view on the statute is that we have exclusive jurisdiction over these markets.”

Source: Cryptopolitan