Minnesota Prediction Market Ban Sparks Federal Lawsuit Over Polymarket, Kalshi

The federal government has sued Minnesota over a new law that would make it a felony to operate, host, or advertise prediction markets in the state, opening a major legal fight over platforms such as Polymarket and Kalshi at a time when regulators are already wrestling with questions about gambling, insider information, and national security.

The Commodity Futures Trading Commission filed the lawsuit, seeking to block the law before it takes effect Aug. 1. Minnesota Gov. Tim Walz signed the measure Monday as part of a public safety bill, making Minnesota the first state to enact an outright ban on prediction markets, according to ABC News. The law passed with bipartisan support, 57-9 in the state Senate and 100-32 in the House, and targets companies rather than individual users.

Prediction markets allow users to buy and sell contracts tied to real-world outcomes, including elections, sports, weather, public events, and geopolitical developments. Supporters describe them as federally regulated financial markets. Critics say they often function like online gambling with fewer state-level consumer protections.

The CFTC argues Minnesota is intruding on federal authority over derivatives markets. The state, meanwhile, has defended the law as a way to protect residents from addiction risks and economic harm tied to event-based betting. Reuters reported that CFTC Chairman Michael Selig criticized the Minnesota law for turning federally legal operators into felons, while Minnesota Attorney General Keith Ellison has argued the state has a responsibility to act.

Minnesota is not alone in challenging the industry. Officials in 11 states have sent cease-and-desist orders to prediction market companies, and litigation involving platforms such as Kalshi and Polymarket has spread across at least eight states, according to News From The States, citing the American Gaming Association.

Arizona became one of the most aggressive states in the fight, filing criminal charges against Kalshi over alleged illegal wagering. A federal judge temporarily barred Arizona from enforcing its gambling laws against prediction market operators and paused the state's criminal case. Arizona prosecutors had charged Kalshi with 20 misdemeanor counts tied to political outcomes, college sports and player performance markets.

Illinois has also targeted the sector. The Illinois Gaming Board lists cease-and-desist letters against Polymarket, Kalshi, Crypto.com and Robinhood, saying it had reason to believe online operators were engaging in unlicensed sports wagering in violation of state law.

Other states cited in industry and legal reporting include Nevada, Maryland, New Jersey, Montana, Ohio and Tennessee, where regulators have pushed back against event contracts that resemble sports betting. A bipartisan group of 39 state attorneys general and the District of Columbia also urged a federal court to preserve state authority over sports gambling regulation.

The fight has reached Congress. Sens. Adam Schiff, D-Calif., and John Curtis, R-Utah, introduced legislation that would bar CFTC-regulated entities from listing prediction contracts that resemble sports bets or casino-style games. Schiff said states should decide what gambling is allowed within their borders, while Curtis warned that young people were being exposed to addictive sports betting through a federal loophole.

The legal debate has grown sharper after a case involving a U.S. Army soldier accused of using classified information to profit from Polymarket bets tied to Nicolás Maduro.

The Justice Department said Gannon Ken Van Dyke, an active-duty soldier stationed at Fort Bragg, was charged with unlawful use of confidential government information for personal gain, theft of nonpublic government information, commodities fraud, wire fraud and making an unlawful monetary transaction. Prosecutors allege he made more than $400,000 by betting on Polymarket markets related to a U.S. military operation to capture Maduro in Venezuela.

According to the indictment, Van Dyke allegedly placed about $33,034 in bets while he had classified, nonpublic information about the operation, including "YES" positions on contracts related to U.S. forces entering Venezuela, Maduro being removed from power and the U.S. invading Venezuela by certain dates. The Justice Department said the bets paid out after Maduro was apprehended in Caracas and the operation became public.