The Commodity Futures Trading Commission (CFTC) has launched legal action against Rhode Island, escalating a growing national dispute over who has the authority to regulate prediction markets in the United States. The federal agency announced Thursday that it is seeking to intervene in ongoing litigation involving prediction market operators Kalshi and Polymarket while also filing its own complaint against the state.

The move came after Rhode Island Attorney General Peter Neronha pursued legal action against the two companies, arguing that sports-related event contracts offered through their platforms fall under Rhode Island’s gambling laws. The state’s lawsuit followed a preemptive legal filing by Kalshi and seeks significant civil penalties against the prediction market operators.

According to the CFTC, Rhode Island’s actions conflict with federal law because the Commodity Exchange Act grants the agency sole authority over the regulation of event contracts and prediction markets operating under its oversight.

“CFTC-registered exchanges have faced an onslaught of lawsuits seeking to limit Americans’ access to event contracts and undermine the CFTC’s sole regulatory jurisdiction over prediction markets,” CFTC Chairman Michael Selig said. “This power grab ignores the law and decades of precedent.”

Federal Agency Defends Exclusive Oversight

The Rhode Island case represents the latest chapter in a broader legal battle between state officials and federal regulators. The CFTC maintains that event contracts offered on registered prediction market platforms qualify as commodity derivatives, placing them under federal supervision rather than state gambling regulations.

In court filings, the agency argued that the Commodity Exchange Act provides clear and longstanding authority over such products and preempts state laws that attempt to regulate designated contract markets. The CFTC also emphasized that the law was designed to accommodate innovation within financial markets while supporting emerging products and trading mechanisms.

The agency reiterated its position that prediction markets serve several economic functions. Chairman Selig stated that these contracts help market participants manage risks linked to future events, allow investors to adjust portfolio exposure, and provide information about expected outcomes.

“Event contracts allow businesses and individuals to hedge event-driven risks, enable investors to manage portfolio exposure, and provide the public with information about the outcome of future events. These products are commodity derivatives and squarely within the CFTC’s regulatory remit. As I’ve said before, the CFTC has the expertise and responsibility to defend its exclusive jurisdiction over commodity derivatives, and that’s exactly what we’ll do.”

The federal regulator’s filing follows Rhode Island’s own legal response in a parallel state case. After Kalshi challenged potential enforcement measures, Rhode Island filed a complaint seeking penalties and action against prediction market operators. In public remarks cited by the CFTC, the attorney general called on prediction markets to “stand down” and “disgorge their profits.”

Growing List of State Challenges

Rhode Island has become the seventh state targeted by the CFTC in disputes involving prediction markets. Similar legal battles are underway in Arizona, Connecticut, Illinois, Minnesota, New York, and Wisconsin, while a total of 18 states are currently engaged in litigation connected to the industry.

Minnesota has emerged as a particularly significant case after state lawmakers approved legislation prohibiting prediction market operations and advertising. Governor Tim Walz signed the measure into law, prompting the CFTC to file a federal lawsuit challenging the ban.

Under Minnesota’s legislation, prediction market platforms are prohibited from operating or advertising in the state beginning August 1. The law is described as the first in the country to explicitly ban prediction markets.

The CFTC argues across these cases that federal law grants it exclusive jurisdiction over the sector and that state enforcement efforts interfere with that authority.

Political Attention Surrounds Prediction Markets

The dispute has also attracted attention from President Donald Trump. Earlier this week, Trump publicly backed the CFTC’s position regarding regulatory authority over prediction markets.

“It is critically important that the CFTC’s exclusive authority over Prediction Markets is maintained, and that they will thrive,” Trump wrote on Truth Social. “It is a major Industry, and we must protect it. Mike Selig, CFTC Chairman, and respected by all, is doing a great job.”

The issue has generated political scrutiny because, according to reports cited by CNBC, the CFTC’s legal actions have so far been directed at states led by Democratic attorneys general. Rhode Island Attorney General Neronha is a Democrat.

Neronha rejected the notion that federal involvement changes Rhode Island’s position. In a statement responding to the CFTC’s intervention, he said, “We allege that Kalshi and Polymarket are operating outside of our sports betting laws, and ultimately, Rhode Islanders will be footing the bill for their actions. Federal intervention in this lawsuit doesn’t change that. We are confident in our case and are ready to go on behalf of Rhode Islanders.”

Trump’s recent support for the industry contrasts with comments he reportedly made last month, when he said he was “never much in favor” of prediction markets. Those remarks followed reports concerning a U.S. service member accused of using classified information while trading on Polymarket markets tied to the political status of Venezuelan President Nicolás Maduro.