Facts on BUSINESS AUGUST 2026

Prediction Markets: Forty-Four States Tell the CFTC to Start Over

The CFTC has shown no sign of withdrawing. The legal pressure on its proposed framework is intensifying.

Intro:

On the final day of the public comment period, forty-four state attorneys general submitted a 66-page letter telling the CFTC to withdraw its proposed prediction market rules entirely. Chris Dodd separately urged the CFTC to rescind the proposal. The NFL also intervened, warning that the proposed framework falls short on integrity and consumer protection. The CFTC's public comment period on its proposed prediction market rulemaking closed on 27 July 2026. The record that closed on 27 July revealed unusually broad opposition to the commission's approach.

Infographic stating 44 states opposing the CFTC's prediction market rule, led by Ohio

The 44 states argue that gambling has always been a matter of state police power, and that the CFTC's proposed rule exceeds its statutory authority. Infographic by iGaming Review.

Forty-Four States, One Law's Author, and the NFL

A coalition of 44 state attorneys general, led by Ohio Attorney General Andy Wilson, submitted a joint letter on the final night of the comment period arguing that the CFTC's proposed rule exceeds its statutory authority under the Commodity Exchange Act and must be withdrawn and rewritten. The coalition, which has grown from roughly 40 states in the spring, argues that gambling has traditionally fallen within state police powers, that the federal government's role has historically centred on financial instruments such as futures and swaps, and that sports bets do not qualify as swaps under the Commodity Exchange Act. "The CFTC in the Proposed Rule goes well beyond its statutory authority," the letter states. "Given the infirmities with the Proposed Rule, the CFTC should reconsider and draft a new rule consistent with the Commodity Exchange Act and the Constitution."

The rule the states are challenging was built by a commission that currently has one member, Chairman Michael Selig. Elizabeth Lan Davis, a former CFTC chief trial attorney now in private practice, told iGaming Review the commission itself has changed as much as the queue in front of it. It used to be five commissioners, split across both parties, with debate and process before anything was agreed. Today there is one commissioner, and he is a Republican.

A separate submission came from former Senator Chris Dodd, whose name is attached to the Dodd-Frank Act, the 2010 law whose language the CFTC's proposed framework depends on. The CFTC's proposal interprets the word gaming in the Commodity Exchange Act in a way that does not automatically encompass gambling or sports wagering. That distinction matters because the law only allows the CFTC to restrict event contracts found to involve gaming. Dodd disputes that interpretation, arguing that Congress deliberately used the term to encompass wagering of this kind. "The term 'gaming' was included in the Special Rule to prevent things like sports wagering and other similar wagers through regulated event contracts," he wrote. "'Gaming' is a legal term of art that Congress has used in statutes when regulating what is commonly known as 'gambling.' The CFTC's proposed regulation runs directly counter to the language of Dodd-Frank and our intent in drafting the Special Rule." He called on the CFTC to rescind the proposed rule entirely.
Dodd also raised the tribal-sovereignty dimension of the dispute. He argued that the proposed regulations seek to allow others to engage in gaming on tribal lands without the consent of tribes and outside the regulatory framework Congress established in the Indian Gaming Regulatory Act. Senators Lisa Murkowski and Brian Schatz wrote separately urging the CFTC to conduct formal government-to-government tribal consultation before finalising any rule.

The NFL wrote to Selig on 27 July saying the proposed framework falls significantly short on game integrity and consumer protection. Major League Baseball submitted separately. Gary Gensler, who implemented Dodd-Frank as CFTC chair from 2009 to 2014, had already filed an amicus brief in June in the Sixth Circuit making the same argument as Dodd. On the same day the 44-state letter landed, a federal judge preliminarily blocked Minnesota's prediction-market ban, finding that the CFTC, Kalshi and Polymarket were likely to succeed on their federal-preemption argument. The ruling does not finally resolve the underlying jurisdictional question. The courts are moving in different directions. The conditions for Supreme Court review are more pronounced than at any previous point in this dispute.

Selig responded publicly on 5 August, arguing that state-by-state regulation would fragment the market and that prediction market contracts are fundamentally different from gambling.

"We believe this litigation is vitally important to protecting the agency's mandate to regulate these markets on a national scale," CFTC Chairman Michael Selig said.

Ohio Statehouse Columbus daytime exterior state government building

Ohio Attorney General Andy Wilson led the coalition of 44 states telling the CFTC its proposed rule exceeds its statutory authority.. © Eddie Rodriquez / Alamy

The Insider Trading and Manipulation Problem

Running alongside the jurisdictional battle is a structural integrity problem the platforms have not resolved. In May 2026, the DOJ charged a Google software engineer with insider trading after he allegedly used internal, non-public search data to trade on a Polymarket contract predicting the year's most-searched person, netting more than $1.2 million. A US Army Special Forces soldier was arrested over trades placed on classified knowledge of a military operation. In July, President Trump's longtime teleprompter operator was placed on leave after Kalshi flagged suspicious trading tied to markets on the content of presidential speeches. Reuters reported that the trades generated more than $90,000 in potential profit before the account was frozen. A Bloomberg analysis identified at least 34,000 Polymarket trades between August 2025 and June 2026 as potentially suspicious, as part of a wider review estimating roughly $200 million in unusual prediction-market betting activity.

Goldman Sachs updated its trading policy in July 2026, banning employees from contracts tied to specific companies, elections, financial markets, macroeconomic data and geopolitics. JPMorgan, Morgan Stanley and Bank of America are each updating their own policies. When CNBC contacted 50 companies about prediction market trading policies, only three had formalised rules in place. Davis told iGaming Review that insider trading is where she spends most of her client conversations. Companies tell her prediction markets have nothing to do with their business, until she opens a platform in front of them and finds event contracts where their own company's name appears.

On 31 July, the CFTC settled a separate case involving former Congressman George Santos, who agreed to pay $35,000 after trading a Kalshi contract on whether he would attend the 2026 State of the Union while posting misleading statements about his own plans on social media. The CFTC brought the Santos matter as a manipulation case rather than an insider-trading case. Unlike the preceding examples, the alleged advantage arose from Santos's ability to influence the outcome of the contract himself. Santos had to disgorge $17,570 in profits, pay an equivalent civil penalty, and accept a three-year trading ban. Kalshi's Head of Enforcement, Robert DeNault, said the exchange flagged the trades and referred the matter to the CFTC. Santos did not admit wrongdoing as part of the settlement. The case illustrates a related but distinct integrity risk facing prediction markets: a participant who can influence or control the real-world outcome of a contract has an incentive to do so publicly while trading privately.

Goldman Sachs headquarters skyscraper exterior New York daytime

Goldman Sachs banned employees from trading prediction market contracts tied to companies, elections and geopolitics in July 2026. JPMorgan, Morgan Stanley and Bank of America have made similar changes.. © Kenneth Grant / Alamy.

What This Means for the Industry

For iGaming operators, the practical stakes are competitive. On several important consumer-protection issues, federally regulated prediction markets currently operate under less prescriptive requirements than state-licensed sportsbooks. The CFTC's proposed rules set no minimum age above 18, against the 21 that most states require, and contain no advertising standards. If the states ultimately prevail on the jurisdictional question, prediction-market operators could face state gambling laws, licensing requirements or restrictions on particular contracts, depending on the jurisdiction. That could narrow some of the regulatory differences between prediction markets and licensed sportsbooks. If the CFTC's claim to federal primacy prevails, prediction markets would retain a regulatory route outside state sportsbook licensing. The precise requirements would still depend on the final CFTC rule, which may change from the proposal now under consideration. Either outcome will shape the regulatory environment for all licensed gambling, whether or not an individual operator ever enters the prediction market space itself.
With the comment period closed, the rulemaking process now moves forward as the parallel court battles continue. The CFTC has given no indication that it intends to withdraw the proposal, although the final rule may still change in response to comments or subsequent developments. A forthcoming Ninth Circuit decision could sharpen the split between federal courts and increase the likelihood of Supreme Court review. A definitive nationwide resolution, however, may still be some distance away, with some legal observers pointing to the Supreme Court's 2027-28 term as a more realistic horizon.

Operators seeking a fuller picture of how this framework is likely to hold up, and what it means for market entry, may find our recent interview with Elizabeth Lan Davis of Davis Wright Tremaine of interest.

Prediction Markets: Forty-Four States Tell the CFTC to Start Over

Forty-Four States, One Law's Author, and the NFL

The Insider Trading and Manipulation Problem

What This Means for the Industry

Further Reading & Key Sources

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