Summary

  • A federal judge has temporarily halted Minnesota's groundbreaking ban on prediction markets just days before it was scheduled to take effect.
  • Judge Katherine Menendez determined that Kalshi, Polymarket, and the Commodity Futures Trading Commission (CFTC) have a strong chance of winning their case based on federal preemption arguments.
  • She cautioned that any permanent resolution might be "much narrower," as not all contracts listed on the platforms may meet the criteria for swaps.

A U.S. District Court judge has issued an injunction preventing Minnesota from enforcing SF 3432, the first state law to make prediction markets illegal, in a decision made on Monday, just ahead of the law's effective date on Saturday. The ruling favors Kalshi, Polymarket, and the CFTC, granting them a preliminary injunction.

In her 44-page ruling, Judge Katherine Menendez found that the three plaintiffs were likely to prevail on claims of express preemption and that the platforms could face irreparable harm. The order prohibits enforcement against exchanges registered with the CFTC as designated contract markets until a final ruling is made.

The Swap Classification

Menendez noted that the question of whether Minnesota's law is preempted hinges on whether the trades in question qualify as "swaps" according to the Commodity Exchange Act (CEA). She concluded that contracts concerning events like Senate elections, the World Cup winner, and the reopening of the Strait of Hormuz meet that definition due to their potential economic, financial, or commercial implications. However, contracts related to shows like Love Island USA or specific phrases announced during a match likely do not.

This distinction is crucial because of the nature of the case. The CFTC clarified during a July 2 hearing that its challenge is facial, meaning it aims to demonstrate there are no circumstances under which the law could be valid. Menendez indicated that while the statute "may not be preempted in all its applications," she chose to issue an injunction to maintain the current situation, criticizing both sides for framing the issue as an "all-or-nothing" scenario. She suggested that any permanent relief sought could be "much narrower."

Next Steps in the Legal Battle

Attorney General Keith Ellison expressed that the state "respectfully disagrees" with the court’s interpretation of the status quo, which he stated in an interview with Courthouse News allows "predatory gambling apps to proliferate." His memorandum argued that the platforms could comply with federal regulations while limiting their offerings within the state.