By Jonathan Stempel
April 2 (Reuters) - The Trump administration sued Arizona, Connecticut and Illinois on Thursday, to stop what it called their unlawful efforts to regulate prediction markets because they may violate state gambling laws.
Attempts by states to shut down efforts by companies such as Kalshi, Polymarket, Crypto.com and Robinhood to provide "event contracts" violated the Commodity Futures Trading Commission's exclusive authority to regulate national swaps markets, the government said.
The lawsuits are the first by the CFTC to block state gaming regulators from policing operators of prediction markets.
It objected to cease-and-desist letters sent to designated contract markets such as Kalshi, Polymarket and Crypto.com, and futures commission merchants such as Robinhood, after regulators found reason to believe they violated state gambling laws by allowing unlicensed sports wagering. Arizona has also filed criminal charges against Kalshi.
In a statement, CFTC Chairman Michael Selig said the regulator "will continue to safeguard its exclusive regulatory authority over these markets and defend market participants against overzealous state regulators."
DEMOCRATIC-LED STATES WERE SUED
Event contracts let people trade based on the predicted outcomes of various events, such as sports and elections.
The defendants include the states' respective governors and attorneys general: Katie Hobbs and Kris Mayes in Arizona, Ned Lamont and William Tong in Connecticut, and JB Pritzker and Kwame Raoul in Illinois.
All are Democrats. State gaming regulators were also named as defendants. Trump is a Republican.
“The Trump Administration is recycling industry arguments that have been rejected in district courts across the country," Tong said in a statement. "We will aggressively defend Connecticut’s commonsense consumer protection laws."
Raoul's office said it is reviewing the Illinois lawsuit. Mayes' office did not immediately respond to requests for comment.
U.S. SAYS STATES UNDERMINING FEDERAL LAW
Arizona, Connecticut and Illinois have legalized sports betting, like most U.S. states and Washington, D.C.
But many states and tribal gaming authorities have sought to exclude prediction markets, alleging they are violating prohibitions against people under 21 from placing wagers.
The federal government said Connecticut and Illinois "misapprehend" the nature of event contracts, enabling them to regulate and license companies that offer the contracts. Allowing such regulation violates the U.S. Constitution, the government said.
"This court should put an end to the ongoing efforts by defendants to undermine the uniform application of federal law," each of the lawsuits said.
Arizona filed its criminal case against Kalshi, the first by a state, on March 17, accusing it of allowing illegal gambling and unlawfully letting people bet on elections.
Kalshi responded that it was not a gambling operation and should not be subjected to a patchwork of inconsistent state laws.
(Reporting by Jonathan Stempel in New York; Additional reporting by Chris Prentice and Nate Raymond; Editing by Mark Porter and Aurora Ellis)
