Judge Halts Minnesota's Prediction Market Ban, Favoring Kalshi and Polymarket

Summary

• A federal judge has issued a temporary injunction against Minnesota's prediction market ban, which was set to take effect soon.
• Judge Katherine Menendez found that Kalshi, Polymarket, and the CFTC likely have strong grounds for their case.
• She noted that a final ruling may limit the scope of any permanent resolution regarding the classification of contracts.

A U.S. District Court judge has intervened to stop Minnesota from enforcing a new law banning prediction markets, just days before its implementation. This landmark legislation, known as SF 3432, was halted by Judge Katherine Menendez, who granted a preliminary injunction to Kalshi, Polymarket, and the Commodity Futures Trading Commission (CFTC).

In her detailed 44-page decision, Judge Menendez indicated that these plaintiffs are likely to succeed based on arguments of federal preemption and that they could suffer irreparable harm if the law were enforced. The injunction specifically protects exchanges registered with the CFTC as designated contract markets until a conclusive ruling is reached.

The Swap Classification

Judge Menendez highlighted that the core issue is whether the trades involved qualify as "swaps" under the Commodity Exchange Act (CEA). She concluded that contracts related to significant events, such as Senate elections or the World Cup, could be classified as swaps due to their economic implications. However, she suggested that contracts tied to entertainment shows or minor events may not fit this definition.

This classification is critical to the case. The CFTC previously indicated that its challenge is broad, aiming to show that the law cannot be valid under any circumstances. Menendez pointed out that while the law might not be universally preempted, she decided to issue the injunction to preserve the status quo, criticizing both parties for presenting the issue as an "all-or-nothing" situation. She warned that any permanent resolution might be more limited in scope.

Next Steps in the Legal Battle

Attorney General Keith Ellison responded to the ruling by expressing the state's disagreement with the court's interpretation, arguing that it allows harmful gambling platforms to continue operating. He suggested that the platforms could still adhere to federal regulations while restricting their offerings within Minnesota.