(This story has been updated to reflect the CFTC filing a lawsuit.)
The Commodity Futures Trading Commission (CFTC) announced Tuesday it filed a lawsuit against the state of Minnesota, just one day after Gov. Tim Walz took “action approval” on SF 4760, a massive public safety bill restricting prediction markets. Language to prohibit sports event contracts and those covering wars, elections, and numerous other aspects takes effect Aug. 1 in the new law.
Semafor reported in early May that CFTC Chair Michael Selig was “monitoring” the situation, and his agency didn’t waste any time adding Minnesota to its list of defendants.
The federal agency has already sued Arizona, Connecticut, Illinois, New York, and Wisconsin over actions taken against prediction markets. Kalshi has sued multiple states, meanwhile, after receiving cease-and-desist letters in the last 18 months, so it would seem to follow that the company will also sue over any ban being put into place by law.
The CFTC called the law “the most aggressive move by a state to shut down CFTC-regulated markets and undermine the federal regulatory regime set up by Congress more than 50 years ago,” in a press release.
State senators were concerned that a ban would keep Minnesota’s farmers from using commodities markets to hedge against a bad harvest. The new law carves out securities and more traditional commodities, and the section on weather contracts was amended to allow for futures trades. But the CFTC pushed back, suggesting that the new law would hurt farmers.
“This Minnesota law turns lawful operators and participants in prediction markets into felons overnight,” said Selig in the press release. “Minnesota farmers have relied on critical hedging products on weather and crop-related events for decades to mitigate their risks. Governor Walz chose to put special interests first and American farmers and innovators last.”
In the definition of prediction markets in the bill, things like traditional commodities and derivatives are not listed.
Legislature knew lawsuits were possible
The language for the new law originated in SF 4511, filed by Sen. John Marty in March. The bill dealt only with prediction markets and was filed late in the session. It passed through the Senate in about six weeks before the decision was made to put it into a bigger bill that was already moving through the House. SF 4760 ultimately went to conference committee for consensus, and the prediction ban was untouched through that process.
No other state has passed legislation banning prediction market offers, but legal battles around them rage across the U.S. In discussion about prediction markets — specifically the sports event contracts and markets about war, terrorism, and assassination — Minnesota senators acknowledged the possibility of lawsuits, but they felt strongly enough about a ban to move forward.
