Kalshi, a prediction market platform, has initiated a lawsuit in federal court against Minnesota, aiming to prevent the enforcement of a newly enacted law that criminalizes the operation, hosting, and promotion of prediction markets starting August 1.

The law, signed by Governor Tim Walz, is challenged by Kalshi on the grounds that it violates constitutional rights. The platform claims it infringes upon the Commodity Futures Trading Commission (CFTC)'s exclusive federal authority as established by the Commodity Exchange Act, and unlawfully limits advertising in breach of the First Amendment.

This legal action comes amid growing scrutiny of prediction markets globally, with several countries recently imposing bans and a House investigation into potential trading by government employees based on nonpublic information.

Key Points:

  • Kalshi's lawsuit aims to block Minnesota's law criminalizing prediction markets starting August 1.
  • The platform asserts the law is unconstitutional, encroaching on federal jurisdiction and violating advertising rights.
  • Prediction markets are facing increasing regulations worldwide, including recent bans in multiple jurisdictions.

The lawsuit follows a motion filed by the CFTC on May 19, which stated that the new law contradicts the U.S. Constitution by criminalizing prediction markets that fall under federal regulation.

Kalshi contends that the law is in violation of the Supremacy Clause, which grants the CFTC exclusive jurisdiction over derivatives and swaps traded on designated contract markets. Furthermore, it challenges the provision that penalizes the marketing of prediction markets as a violation of the First Amendment.

Recently, U.S. President Donald Trump emphasized the importance of maintaining the CFTC's authority over prediction markets, aligning with the views of CFTC Chair Michael Seligl.

Kalshi has successfully obtained preliminary injunctions in similar cases against enforcement actions in New Jersey and Arizona.

Globally, prediction markets are under pressure, with recent bans enacted in countries including Indonesia, Spain, and India. Additionally, the U.S. government is investigating these markets, with a House committee confirming its inquiry last week.