Federal Lawsuits Challenge State Prediction Market Enforcement

April 8, 2026

FinTech Five - Lowenstein's FinTech, Crypto, Trading & Markets Newsletter - April 7, 2026

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1. CFTC and DOJ Sue Arizona, Connecticut, and Illinois To Defend Federal Jurisdiction Over Prediction Markets

On April 2, the Commodity Futures Trading Commission (CFTC) and the Department of Justice (DOJ) filed lawsuits against Arizona, Connecticut, and Illinois, challenging each state’s enforcement actions against CFTC-registered designated contract markets that facilitate trading in event contracts. The CFTC argues that the Commodity Exchange Act grants it exclusive jurisdiction over prediction markets and that state-level enforcement creates the “fragmented patchwork” of regulation that Congress sought to prevent. Each state had taken a different enforcement path: Arizona filed criminal charges against Kalshi in March 2026 after issuing a cease-and-desist letter in May 2025; Connecticut’s Department of Consumer Protection issued cease-and-desist letters to Kalshi, Crypto.com, and Robinhood Derivatives in December 2025; and Illinois sent cease-and-desist letters to multiple prediction market platforms, including Kalshi. The lawsuits seek declaratory and injunctive relief prohibiting the states from enforcing state gambling laws against prediction market operators. The CFTC simultaneously released a FAQ document on its jurisdiction over prediction markets. The CFTC’s press release is available here . The CFTC’s FAQ on prediction markets jurisdiction is available here . The complaints against Arizona, Illinois, and Connecticut are available here , here , and here , respectively.

2. 3 rd Circuit Affirms Preliminary Injunction Blocking New Jersey From Regulating Kalshi’s Prediction Market

On April 6, a panel of the U.S. Court of Appeals for the Third Circuit, in a 2-1 decision, affirmed a preliminary injunction issued by the U.S. District Court for the District of New Jersey blocking the New Jersey Division of Gaming Enforcement from enforcing state law against Kalshi’s sports-related event contracts. The panel explained that because the CFTC has exclusive jurisdiction over swaps traded on Kalshi’s CFTC-licensed designated contract market (DCM) and Kalshi’s event contracts are “swaps” traded on a DCM, it agreed with the district court’s finding that “at the very least field preemption applies.” The opinion is available here .

3. New York Governor Previews Sweeping Measures To Curb Youth Sports Betting and Restrict AI-Targeted Promotions

On March 30, New York Gov. Kathy Hochul previewed new draft regulations from the New York State Gaming Commission aimed at preventing youth from gambling online; the regulations would ban all gaming operators from using artificial intelligence to target bettors with personalized promotions and wager suggestions. The proposed regulations would also require individuals to provide biometric data to create a sports wagering account and again before placing a wager, and they mandate device registration and geolocation controls to prevent underage access. The Gaming Commission is accepting public comments on the draft regulations until May 15. The draft regulations are available here .

4. CFTC Resolves Enforcement Action Against Former Head of Engineering at FTX

On April 1, the CFTC announced that the U.S. District Court for the Southern District of New York entered a supplemental consent order against Nishad Singh, the former head of engineering at FTX, resolving the agency’s enforcement action against him. The order imposes disgorgement of $3.7 million, requires Singh to continue cooperating with the commission, and imposes a five-year trading ban and an eight-year registration ban from the date of entry of the initial consent order. The court had entered an initial consent order in April 2023, finding Singh liable for fraud by misappropriation and aiding and abetting such fraud, and permanently enjoining him from violating the antifraud provisions of the Commodity Exchange Act. The CFTC did not seek restitution or a civil monetary penalty based in part on Singh’s cooperation in the commission’s investigation and related proceedings, including the parallel criminal action in which Singh pled guilty to six counts, including conspiracy to commit commodities fraud. The CFTC’s press release is available here . A supplemental consent order is available here .

5. Federal Reserve Vice Chair for Supervision Bowman Highlights Proposed Capital Rule Changes To Support Small-Business Lending

On March 31, Federal Reserve Vice Chair for Supervision Michelle W. Bowman delivered remarks outlining proposed changes to bank capital rules designed to encourage small-business lending. Bowman noted that under current standardized risk-based capital rules, small-business loans are generally risk-weighted at 100 percent–the same capital requirement applied to many higher-risk bank assets. Bowman described three key changes in the agencies’ Basel III proposal: First, for small-business loans exceeding $1 million, the risk weight would decrease from 100 percent to 65 percent for borrowers considered investment grade by the lending bank; second, for small-business loans under $1 million, the risk weight would decrease from 100 percent to 75 percent; and third, small-business credit cards would receive capital treatment more aligned with the actual risk of those exposures. Bowman’s remarks are available here.

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