The U.S. Department of Justice and the Commodity Futures Trading Commission filed lawsuits against Illinois, Arizona, and Connecticut on Wednesday, marking the federal government's most aggressive move yet to protect prediction markets from state gambling regulations.

Federal vs. State Showdown

The lawsuits argue that the CFTC holds exclusive jurisdiction over event contracts offered by platforms like Polymarket, Kalshi, and Crypto.com. All three states had previously sent cease-and-desist letters to these platforms, claiming their sports-related prediction markets constituted unlicensed gambling.

"The CFTC will continue to safeguard its exclusive regulatory authority over these markets," CFTC Chairman Michael Selig said in a statement, calling the state actions "a fragmented patchwork" that Congress specifically rejected.

Growing State Resistance

The federal action comes after months of escalating tensions. Nevada temporarily banned Kalshi last month in what became the first successful state-level shutdown of a prediction market. Arizona went further, filing criminal charges against Kalshi for allegedly operating an illegal gambling business without a license.

The resistance is not strictly partisan. While Illinois and Connecticut are deep-blue states, red-leaning Utah and Tennessee have also moved against prediction market platforms in recent months.

Conflicts of Interest

The Trump administration's support for prediction markets has raised questions. Trump's media company has its own prediction market ambitions, and Donald Trump Jr. currently advises both Polymarket and Kalshi. The DOJ lawyer leading the federal case previously represented Kalshi, adding another layer of scrutiny to the proceedings.

A CFTC hearing before the Ninth Circuit on a related consolidated case is expected later this month.