Kalshi sues Illinois over law regulating prediction markets

Leading prediction market platform, Kalshi, has filed a federal lawsuit against the state of Illinois, challenging the recently created law that would force prediction market platforms to obtain a state license.

The suit, filed in the U.S. District Court for the Northern District of Illinois, has named Governor JB Pritzker, Attorney General Kwame Raoul, and other state officials as defendants. Kalshi has also asked the court for a temporary restraining order and both preliminary and permanent injunctions to ensure the state of Illinois does not enforce the newly signed law on the intended July 1 date.

The new Illinois law

Governor Pritzker signed the SB3019 last week, a bill created as a state licensing requirement for prediction market operators and aiming to impose a 0.2% tax on all digital asset transactions involving customers based in Illinois, as previously reported by Cryptopolitan.

Kalshi, however, argues that these state-level requirements are invalidated by the Commodity Exchange Act because the platform operates as a CFTC-registered platform.

The prediction market platform’s argument further states that Federal law gives the CFTC exclusive jurisdiction over exchange-traded derivatives, and states cannot form additional regulatory regimes in addition.

Kalshi’s lawsuit

The lawsuit puts a spotlight on what Kalshi describes as an impossible choice between state and federal rules. If the platform pulls its sports event contracts from Illinois to comply with the new state law, that move would directly violate CFTC uniformity requirements.

Staying in the state without a license would also mean breaking Illinois law.

Implementing geoblocking technology to restrict Illinois users would be expensive and technically complex, Kalshi claimed in the submitted complaint. The company argues those costs would not be recoverable even if it ultimately prevails in its court lawsuit.

“It expressly violates the CEA’s ‘exclusive jurisdiction’ provision by asserting concurrent state jurisdiction over sports events contracts traded on federally regulated DCMs,” Kalshi said in its filing.

Federal vs State conflict ramping up?

The lawsuit is the latest in a growing number of disputes between the federal regulators at the CFTC and U.S. state governments over the control and regulation of prediction markets, most especially those offering bets tied to sporting events.

The Michael Selig-led CFTC has sued nine states so far to assert federal authority over the prediction market sector, including one filed against Illinois in April. The sued states have, however, pushed back against their federal counterparts, arguing that prediction market platform operations are essentially gambling products, and that they violate local betting laws.

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