Senators Urge Top Regulator to Stay Out of Prediction Market Lawsuits

A group of 23 Democratic US senators sent a letter Friday to the top federal regulator overseeing prediction markets, urging the agency to avoid weighing in on pending court cases over the legality of offerings on the platforms tied to "sports, war, and other prohibited events.”

Prediction markets, which sell contracts tied to the outcome of real-world developments, have exploded in popularity over the past year, attracting an increasingly mainstream fanbase eager to wager on everything from geopolitical conflicts to fashion choices to the Super Bowl. As they expanded, the platforms have become a magnet for ethical and legal controversies. On Thursday, for example, Israeli authorities announced that two people had been arrested on suspicion of using classified military information to place bets on Polymarket, one of the biggest players in the industry.

The letter from the senators reflects a growing divide over how Polymarket and competitors like Kalshi should be handled. The US government currently considers prediction markets to be derivative markets, which means they fall under the jurisdiction of the Commodity Futures Trading Commission. But state authorities, who have emerged as some of the industry’s staunchest critics, are arguing the platforms should be subject to the same local regulations as gambling products.

There are at least 19 ongoing federal lawsuits challenging Kalshi’s legality, according to an analysis by National Public Radio. In one case in Massachusetts, a judge banned the company from offering sports contracts after the state sued it for operating without a gambling license. Polymarket then filed a counter lawsuit against Massachusetts arguing that state regulators don’t have authority over its business.

In his first public remarks about prediction markets since taking office in December, CFTC chairman Michael Selig suggested that the agency might wade into the battles, noting that it has the "expertise and responsibility to defend its exclusive jurisdiction.”

Now, a cadre of senators led by California’s Adam Schiff are urging the CFTC to stay out of the state lawsuits. Their letter also asks the agency to bar prediction markets from offering gaming contracts, as well as contracts involving "war, terrorism, assassination, or other enumerated activities.” The signatories include Cory Booker, Amy Klobuchar, and Ron Wyden. The CFTC did not respond to requests for comment.

https://www.wired.com/story/senators-urge-top-regulators-to-stay-out-of-prediction-market-lawsuits/