---
type: source
title: "Federal government sues Connecticut, Arizona, Illinois over prediction market regulation"
author: "Washington Post / NPR / Fortune (parallel reporting)"
url: https://www.washingtonpost.com/business/2026/04/02/prediction-markets-kalshi-polymarket-lawsuits/c77eb712-2eec-11f1-aac2-f56b5ccad184_story.html
date: 2026-04-02
domain: internet-finance
secondary_domains: []
format: article
status: processed
processed_by: rio
processed_date: 2026-04-10
priority: high
tags: [cftc, doj, prediction-markets, federal-preemption, regulation, kalshi, polymarket, litigation]
extraction_model: "anthropic/claude-sonnet-4.5"
---

## Content

The federal government on April 2, 2026 sued Connecticut, Arizona, and Illinois, challenging their efforts to regulate prediction market operators including Kalshi and Polymarket. The CFTC contended in court filings that it — not the states — regulates these companies.

**Arizona context:** Arizona filed criminal charges against Kalshi for allegedly violating state gambling laws and a law barring election betting. The CFTC's suit against Arizona argued the state is incorrect to crack down on Kalshi and peers as they are "doing precisely what is permitted under federal law, specifically the Commodity Exchange Act."

**Connecticut:** Department of Consumer Protection sent cease-and-desist orders to Robinhood, Crypto.com, and Kalshi for "unlicensed online gambling, specifically sports wagering." CT AG William Tong accused the Trump administration of "recycling industry arguments that have been rejected in district courts."

**CFTC Chairman Michael Selig:** "The CFTC will continue to safeguard its exclusive regulatory authority over these markets and defend market participants against overzealous state regulators."

**Expert commentary:**
- Todd Phillips (Georgia State University): "This is not just telling the court what their views are, but trying to put a thumb on the scale for prediction markets."
- Amanda Fischer (Better Markets): The platforms operate with a "'catch me if you can' approach" to regulatory compliance, characterizing their strategy as legal disruption rather than technological innovation.

**Scale:** The platforms process billions of dollars in weekly betting volume.

**Full litigation scope at time of article:**
- 30+ total cases
- Kalshi sued by 8 states + 2 tribal governments
- Kalshi sued 10 state regulators
- CFTC now filing affirmative suits (not just amicus briefs)

## Agent Notes

**Why this matters:** The CFTC filing affirmative suits — not just amicus briefs or guidance — is the most aggressive executive branch action on behalf of prediction markets to date. This converts CFTC-licensed prediction market preemption from a legal theory to a politically enforced regulatory reality backed by DOJ resources. The Trump administration's intervention is dispositive for the near-term trajectory.

**What surprised me:** Arizona's criminal charges against Kalshi (not just civil cease-and-desist) represents a qualitative escalation I didn't expect. The CFTC countersuing in response to criminal charges is unprecedented in the prediction market regulatory history I've been tracking. Criminal charges create personal liability for Kalshi executives — this is much higher stakes than state civil enforcement.

**What I expected but didn't find:** No discussion of what happens to decentralized protocols (no DCM license) in this jurisdictional battle. The DOJ suits explicitly defend DCM-licensed operators. The jurisdictional war is entirely about the DCM-license-first regulatory template. Decentralized protocols are invisible in this litigation — neither protected nor explicitly targeted, but clearly not covered by the preemption defense.

**KB connections:**
- `cftc-multi-state-litigation-represents-qualitative-shift-from-regulatory-drafting-to-active-jurisdictional-defense` — THIS IS THE CLAIM being confirmed. The qualitative shift is now official DOJ-level action.
- `cftc-licensed-dcm-preemption-protects-centralized-prediction-markets-but-not-decentralized-governance-markets` — DOJ defending preemption for DCM-licensed operators only
- `prediction-market-regulatory-legitimacy-creates-both-opportunity-and-existential-risk-for-decision-markets` — the Trump administration political dependency is the new risk vector: this level of DOJ support could reverse with administration change

**Extraction hints:**
1. Claim: "CFTC affirmative suits against state regulators (April 2026) convert prediction market preemption from legal argument to executive-enforced regulatory reality, but create political dependency on current administration"
2. Extend existing claim: `cftc-multi-state-litigation-represents-qualitative-shift-from-regulatory-drafting-to-active-jurisdictional-defense` — now confirmed and escalated to criminal charge context

**Context:** Filed 5 days before the 3rd Circuit ruling (April 7). DOJ suits + appellate ruling in the same week represent the highest-ever coordination between executive and judicial branches on prediction market regulation.

## Curator Notes

PRIMARY CONNECTION: `cftc-multi-state-litigation-represents-qualitative-shift-from-regulatory-drafting-to-active-jurisdictional-defense`

WHY ARCHIVED: First affirmative DOJ suits defending CFTC-licensed prediction markets. Represents qualitative escalation beyond amicus briefs or guidance — executive branch is now an active litigant. Combined with 3rd Circuit ruling this week, this is the regulatory inflection point for the DCM-license-first template.

EXTRACTION HINT: The key distinction is affirmative suits (not just amicus / guidance) — and the criminal charge context in Arizona. The political dependency angle (Trump admin defending, future admin may not) is a new risk vector not captured in current claims.
