CFTC Sues New Mexico to Block State Gambling Laws Seeking to Prohibit Sports Event Contracts

• The Commodity Futures Trading Commission filed a lawsuit in federal court against the state of New Mexico
• The lawsuit seeks to block New Mexico’s lawsuit against Kalshi
• New Mexico Attorney General Raúl Torrez filed a lawsuit against Kalshi in early June

The Commodity Futures Trading Commission filed a lawsuit in federal court against the state of New Mexico after Attorney General Raúl Torrez announced on June 4 a New Mexico Department of Justice (DOJ) lawsuit against prediction market operator Kalshi.

The Commodity Futures Trading Commission (CFTC) filed its lawsuit in U.S. District Court for the District of New Mexico, seeking a declaratory judgement that federal law grants the CFTC exclusive authority to regulate event contracts.

“New Mexico is the latest state seeking to nullify black letter law and decades of judicial precedent by imposing state gaming laws on federally regulated derivatives exchanges subject to the CFTC’s exclusive jurisdiction,” CFTC Chairman Michael S. Selig said in a release. “As I’ve said repeatedly, the CFTC has the expertise and responsibility to protect its exclusive jurisdiction over commodity derivatives, and that’s exactly what we’ll continue to do.”

Who Has Exclusive Authority?

The CFTC lawsuit reaffirms its “clear and longstanding exclusive jurisdiction” to regulate event contracts and the prediction markets under the Commodity Exchange Act (CEA).

“The United States and the Commission are injured by New Mexico’s enforcement efforts. The federal government has a statutorily protected interest in maintaining exclusive jurisdiction over transactions involving swaps on DCMs, as well as in administering the CEA’s comprehensive regulatory structure. New Mexico, however, is attempting to block the operation of exchanges that the Commission has expressly approved, as well as event contracts that have been self-certified to the Commission and that the Commission has permitted to be listed. These consequences directly harm the federal government’s sovereign, legally protected interest in enforcing federal law,” CFTC counsel wrote in the lawsuit.

The CFTC lawsuit requests preliminary and permanent injunctive relief against the state.

The complaint from Torrez and the New Mexico Department of Justice, filed in State of New Mexico First Judicial District Court County of Santa Fe, alleges Kalshi’s online platform allows users to engage and wager on the outcome of sports through its sports event contract markets.

These markets, the complaint notes, act as traditional sports bets, which Kalshi offers in the state without any gaming license and to individuals as young 18. Kalshi’s offerings “undermine New Mexico’s public policy regarding gaming and threaten the state’s sovereign authority to regulate gambling activities within its borders,” according to a New Mexico DOJ statement.

CFTC Taking Active Role

The CFTC now has active lawsuits in eight states across the country to preserve its regulatory authority over prediction markets and sports event contracts.

The CFTC asserts the Commodity Exchange Act (CEA) has provided the commission with “exclusive jurisdiction” to regulate futures, options, and swaps traded on federally regulated exchanges. The CFTC has filed several lawsuits and amicus briefs against states in defense of this right.

Currently, the CFTC has filed lawsuits in the following states:

• Arizona
• Connecticut
• Illinois
• Minnesota
• New Mexico
• New York
• Rhode Island
• Wisconsin