Accept CFTC oversight: Coinbase CLO dismisses Wisconsin prediction market lawsuit

Addressing the lawsuit filed by the Wisconsin Department of Justice against Coinbase and four other prediction market platforms, Paul Grewal, chief legal officer of Coinbase, directed the state to defer to a recent court ruling saying federal law overrides state gambling bans.

Grewal wrote on X, “Congress was clear – consumers deserve uniform, federal oversight over derivatives markets,” adding that “Wisconsin should accept clear and consistent CFTC oversight of prediction markets  – just as Congress intended.”

Why is Wisconsin suing Coinbase and prediction markets?

The Wisconsin DOJ announced complaints against Kalshi, Robinhood, Coinbase, Polymarket, and Crypto.com, alleging that their sports-related event contracts constitute illegal gambling under state law.

The state’s attorney general, Josh Kaul, said, “Thinly disguising unlawful conduct doesn’t make it lawful.” He added, “These companies’ alleged facilitation of sports betting in Wisconsin should be shut down.”

The lawsuits seek preliminary and permanent injunctions barring all five companies from offering sports-related event contracts to customers in Wisconsin and request a declaration of public nuisance.

In its statement, the office of the attorney alleges that the defendant companies “have chosen to flout Wisconsin law through disguising the sports betting they facilitate on their online platforms as ‘event contracts,’ which pay out just like ordinary bets based on the odds of sports-related outcomes.”

Prosecutors cited Kalshi’s own Instagram advertisements, one of which had the caption “The First Nationwide Legal Sports Betting Platform,” and pointed out that the companies collect transaction fees on each contract, likening the model to a casino taking a cut of wagers.

What legal ground is Coinbase standing on?

Grewal’s rebuttal is based on the landmark ruling handed down earlier this month by the US Court of Appeals for the Third Circuit. In a 2-1 opinion in KalshiEX LLC v. Flaherty, the court became the first federal appellate court to hold that the Commodity Exchange Act preempts state gambling laws as applied to sports-related event contracts traded on CFTC-registered designated contract markets.

The majority found that Kalshi’s event contracts qualify as swaps under the Act and that allowing states to prohibit such contracts would produce the exact patchwork of regulation that Congress designed the CFTC’s exclusive jurisdiction to eliminate.

Grewal referenced that logic, stating that the current Wisconsin lawsuit “is exactly the patchwork that Congress replaced wholecloth by creating the CFTC.”

The sentiment was consistent with a statement he issued days earlier in response to a separate lawsuit from New York Attorney General Letitia James, who sued Coinbase and Gemini on April 21, calling their prediction markets “illegal gambling operations.”

The CFTC itself has entered the fray after it filed simultaneous complaints against Connecticut, Arizona, and Illinois on April 2, asserting federal preemption of those states’ enforcement actions, an unprecedented federal offensive.

CFTC Chairman Michael Selig stated, “The CFTC will continue to safeguard its exclusive regulatory authority over these markets and defend market participants against overzealous state regulators.”

Is Wisconsin an isolated challenge, or part of something bigger?

Wisconsin’s complaints add to a growing wave of state-level legal actions that collectively pose a challenge to the industry’s federal preemption strategy.

Tennessee and Arizona have separately sued to prevent Kalshi from offering certain markets. Arizona went furthest, filing a 20-count criminal information against Kalshi, the only state so far to pursue a criminal route.

More than 34 states have filed amicus briefs asserting their regulatory authority, while a bipartisan coalition of more than 20 senators has urged the CFTC to stop intervening in prediction market litigation, a sign that even within the federal government, Grewal’s certainty is not universally shared.

The conflict is building towards a Supreme Court reckoning. The Ninth Circuit heard oral arguments on April 16 in cases involving Kalshi, Robinhood, and Crypto.com brought by Nevada. If it reaches a different conclusion from the Third Circuit, a circuit split would effectively force the Supreme Court’s hand.

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