CFTC sues Kentucky over Kalshi and Polymarket crackdown, breaking the blue-state-only pattern

The Commodity Futures Trading Commission (CFTC) filed a one-count complaint against Kentucky on Tuesday, June 23, to block the state’s enforcement actions against Kalshi and Polymarket. The lawsuit names the Commonwealth of Kentucky, Governor Andy Beshear, Attorney General Russell Coleman, Department of Revenue Commissioner Thomas Miller, and the Kentucky Racing and Gaming Corporation as defendants. It asks the court to declare Kentucky’s prediction-market laws unconstitutional and to bar their enforcement.

The complaint calls Kentucky’s actions “the latest entries in Kentucky’s campaign to banish prediction markets from within their borders.” Kentucky becomes the ninth state the CFTC has sued in its campaign to assert exclusive jurisdiction over event contracts, after Illinois, Arizona, Connecticut, New York, Rhode Island, Wisconsin, Minnesota, and New Mexico.

Prior targets included governors and attorneys general who were Democrats. In contrast, Kentucky does not follow this trend. While Beshear is a Democrat, Coleman is a Republican attorney general, which makes him the first such attorney general to face a CFTC suit.

Coleman’s June 17 suit triggered the federal response in six days

Coleman filed separate lawsuits against Kalshi and Polymarket on June 17 in Franklin Circuit Court, accusing both platforms of running unlicensed sportsbooks under Kentucky gambling law. “Kalshi and Polymarket are operating illegal sportsbooks in Kentucky and breaking our laws,” Coleman said in the announcement.

The Kalshi suit also named Coinbase, Robinhood, and Webull as affiliated defendants, alleging the platforms helped Kentucky users access sports event contracts. The Polymarket suit alleged the platform spread false and misleading advertising suggesting it could legally offer sports betting in Kentucky.

Kentucky’s complaint claimed 89% of Kalshi’s $23 billion in 2025 contract volume came from sports wagering. Both Kalshi and Polymarket have already removed the Kentucky cases from state court to federal court, betting on a more favorable venue.

Kentucky may attempt to push the cases back to state court, which would set up the procedural fight Coleman has signaled he wants.

The Michigan ruling last week gives the state side new leverage

A federal judge in Michigan’s Western District denied Polymarket’s request for a preliminary injunction against state regulators, ruling that sports prediction markets do not qualify as swaps and therefore fall outside CFTC exclusive jurisdiction.

Polymarket has appealed to the Sixth Circuit, which also covers Kentucky, Ohio, and Tennessee. Two district court judges in the Sixth Circuit have now preliminarily sided with state regulators while one has sided with the platforms.

The Third Circuit sided with Kalshi in the New Jersey case earlier this year. A federal judge paused Arizona’s criminal case against Kalshi after the federal preemption argument was deemed likely to win.

The CFTC’s litigation strategy is partly designed to push the conflict toward a Supreme Court ruling that legal observers expect within 12 to 18 months.

CFTC Chairman Michael Selig said in April that the agency would defer to whatever the courts decide. That position now meets a Sixth Circuit appeal where the federal jurisdiction question is the actual issue.

The 14.25% Kentucky tax is the second front

Kentucky also enacted a 14.25% excise tax on prediction-market transaction fees in April under House Bill 904, set to take effect January 1, 2027. It would be the first such tax in the country. The Coalition for Fair Markets, a trade group representing Kalshi, Crypto.com, and Polymarket, filed its own lawsuit against the Kentucky attorney general on June 12, calling the tax discriminatory against federally regulated platforms.

The CFTC’s June 23 complaint addresses the tax directly, arguing it “concerns or regards” exchange-traded derivatives within the agency’s exclusive jurisdiction under the Commodity Exchange Act.

The combined federal pressure (the CFTC suit against the AG and the industry coalition suit against the tax) puts Kentucky in the same defensive position as Wisconsin and Minnesota, but with the partisan optics flipped.

More than a dozen other states have sent cease-and-desist letters or taken legal action against prediction-market operators, including Montana, Nevada, Utah, Iowa, Ohio, Tennessee, New Jersey, Maryland, and Connecticut. 41 state attorneys general urged Selig to affirm state authority over gambling, and 39 AGs filed an amicus brief backing Massachusetts in its case against Kalshi.

The Kentucky suit weakens the partisan-cover critique of the CFTC’s campaign

A New York Times investigation in May reported that senior career CFTC officials were suspended or pushed out after raising regulatory concerns about Polymarket, Crypto.com, and a Gemini affiliate, all firms with documented Trump family financial ties. Donald Trump Jr. is a paid adviser to Kalshi and a Polymarket investor through 1789 Capital. President Trump backed the CFTC’s exclusive authority over prediction markets in a Truth Social post earlier in June.

As Cryptopolitan reported on June 19, Kalshi crossed $2 billion in annualized revenue at a $22 billion valuation with monthly trading volume of $16.81 billion in May. If state AGs are correct that 89% of contract volume came from sports, an adverse ruling could eliminate the primary revenue source the company is preparing to take public in 2027 or 2028.

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