CFTC Intervenes in Rhode Island Case Over Prediction Markets

CFTC Files Lawsuit to Block Rhode Island Gambling Enforcement – Federal Regulator Reasserts Authority Over Prediction Markets

Key Takeaways

• The Commodity Futures Trading Commission has filed a motion to intervene in a Rhode Island lawsuit targeting prediction market platforms Kalshi and Polymarket.
• The federal regulator seeks to prevent Rhode Island from applying state gambling laws to CFTC-registered exchanges offering event contracts.
• CFTC chairman Michael Selig said the agency has exclusive jurisdiction over event contracts as commodity derivatives.
• The intervention follows a lawsuit by Rhode Island attorney general Peter Neronha against Kalshi and Polymarket.
• A separate criminal case involving alleged insider trading on Polymarket has drawn additional attention to event contract markets.

CFTC Moves to Intervene in Rhode Island Lawsuit

The Commodity Futures Trading Commission has stepped into an ongoing legal dispute in Rhode Island in an effort to prevent state authorities from enforcing local gambling laws against federally registered prediction market platforms.

According to a motion filed in the US District Court for the District of Rhode Island, the CFTC is seeking to intervene in a lawsuit brought by Rhode Island attorney general Peter Neronha against prediction market operators Kalshi and Polymarket. The state’s legal action aims to apply Rhode Island gambling laws to the platforms’ event contract offerings.

The CFTC argues that such enforcement would infringe on its exclusive regulatory authority. In its filing, the federal agency accuses state officials of attempting to usurp jurisdiction that, under federal law and established precedent, belongs to the CFTC.

For users of prediction markets and crypto-based event contract platforms, the dispute centers on whether these products are treated as state-level gambling offerings or federally regulated derivatives.

Federal Regulator Asserts Exclusive Jurisdiction Over Event Contracts

In a public statement, CFTC chairman Michael Selig described the state-level legal actions as part of an “onslaught” of lawsuits targeting CFTC-registered exchanges that list event contracts.

Selig stated that these lawsuits seek to limit Americans’ access to event contracts and undermine what he characterized as the CFTC’s sole regulatory jurisdiction over prediction markets. He described the state’s actions as a “power grab” that ignores both the law and decades of precedent.

According to the CFTC, event contracts qualify as commodity derivatives. As such, they fall within the agency’s regulatory remit. The chairman emphasized that the CFTC has both the expertise and the responsibility to defend its exclusive jurisdiction over these products.

The agency also highlighted what it sees as the functional role of event contracts. Selig said they allow businesses and individuals to hedge event-driven risks, help investors manage portfolio exposure, and provide the public with information about the outcome of future events.

This classification is central to the dispute. If event contracts are recognized as commodity derivatives, they are regulated at the federal level. If treated as gambling products, they could fall under state gaming laws, potentially affecting availability and compliance requirements for operators.

Rhode Island Targets Kalshi and Polymarket Under State Gambling Laws

The underlying lawsuit was filed by Rhode Island attorney general Peter Neronha against Kalshi and Polymarket, two platforms known for offering event-based contracts on a range of outcomes.

While details of the state’s legal arguments were not outlined in the CFTC filing summary, the core issue is the application of Rhode Island gambling statutes to the platforms’ operations.

For platforms that are registered with the CFTC, state-level enforcement actions raise questions about overlapping or conflicting regulatory frameworks. The CFTC’s motion to intervene signals that the federal agency intends to defend its position that these markets are not subject to state gambling oversight when properly registered and operating under federal rules.

This legal confrontation could be significant for users who access prediction markets as part of broader crypto or financial strategies. Depending on the outcome, state-level restrictions could affect platform access, product offerings, or operational continuity in certain jurisdictions.

Insider Trading Case Highlights Scrutiny of Event Contract Markets

The debate over the regulatory status of prediction markets has intensified amid a separate criminal case involving alleged misuse of inside information on Polymarket.

Earlier this week, a Google employee, Michele Spagnuolo, was charged with using inside information to place bets on Polymarket. According to the allegations, Spagnuolo made a profit of $1.2 million on event contracts related to the most searched person in 2025. He allegedly knew in advance that the individual would be the suspected murderer David Anthony Burke.

While the CFTC maintains that event contracts serve legitimate financial and informational functions, the case has drawn attention to how certain contracts may operate in practice. It also underscores that, beyond jurisdictional disputes, enforcement authorities may scrutinize trading behavior on such platforms under other areas of law.

For users, the case illustrates that event contract markets can be subject to criminal enforcement when authorities believe insider information or other illegal conduct is involved.

Our Assessment

The CFTC’s intervention in Rhode Island marks a direct challenge to state-level attempts to regulate prediction markets under gambling laws. By filing to join the lawsuit against Kalshi and Polymarket, the federal agency is asserting exclusive jurisdiction over event contracts as commodity derivatives. At the same time, a separate criminal case involving alleged insider trading on Polymarket highlights ongoing legal and compliance scrutiny surrounding these markets. Together, these developments underscore the regulatory tension and enforcement focus currently shaping the US prediction market landscape.