CFTC Sues Minnesota Hours After Walz Signs Prediction Market Felony Ban

The Commodity Futures Trading Commission (CFTC, the federal agency that oversees U.S. derivatives markets) filed suit against the State of Minnesota on May 19, 2026, less than 24 hours after Governor Tim Walz signed legislation that would turn the operation of a prediction market into a felony when the law takes effect on August 1. The complaint asks the U.S. District Court for the District of Minnesota for a preliminary injunction before the criminal provisions can ever bite, and it leans on a template the agency has already used to win at the Third Circuit and to freeze a near-identical statute in Arizona.

Minnesota is the first state to outlaw the category outright. Five federal complaints, one appellate ruling, a pending Ninth Circuit decision and roughly twenty active state actions now stand between Polymarket, Kalshi and the question of whether event contracts are a federally regulated financial instrument or a state-regulated bet.

Inside the Minnesota Felony Statute

The Minnesota law was folded into a broader public safety package signed Sunday evening. Its operative section makes it a felony to operate, facilitate or advertise a prediction market that takes wagers on a defined list of contingent outcomes. Penalties scale with the dollar value of the contracts processed in the state.

The banned subject matter, as written:

• Sports outcomes, including game winners, prop bets and totals
• Weather events, including precipitation, temperature and storm tracking
• Popular culture events, including award shows, music chart positions and box office figures
• War and armed conflict outcomes
• Deaths of public figures

The statute carves out two categories. The first covers event contracts that function as an insurance policy against “harm, or loss sustained” by the purchaser, which keeps traditional commercial crop and weather hedges legal if they are structured as insurance. The second exempts the purchase of securities and commodities, which preserves regulated futures and options.

Most contracts on Kalshi and Polymarket do not fit either carve-out. A Minnesota farmer using a Kalshi weather contract for revenue protection, rather than as an insurance product tied to a documented loss, sits inside the prohibition. So does anyone in Minneapolis trading a Super Bowl spread on Polymarket. The penalty for the operator is felony exposure; the penalty for the user is left to prosecutorial discretion under the statute’s facilitate clause.

From Bill Signing to Federal Complaint in 24 Hours

Walz signed the public safety package on Sunday, May 17. He also signed a companion bill the same week that authorized crypto custody services inside Minnesota, a combination Kalshi’s communications team flagged as internally inconsistent. By Tuesday afternoon, the CFTC had a complaint on file with the federal court in Minneapolis and a press release on its wire labeled Release Number 9233-26.

The federal filing seeks declaratory and injunctive relief on two grounds the agency has previously argued: that the Commodity Exchange Act (CEA, the 1936 law that gave the CFTC authority over commodity derivatives) preempts the field of event-contract regulation, and that the Minnesota statute conflicts with federally licensed designated contract markets (DCMs, the registered exchanges where event contracts trade). Both arguments cleared in Arizona last month.

CFTC Chair Michael Selig was direct in the agency’s May 19 release on the Minnesota complaint.

This Minnesota law turns lawful operators and participants in prediction markets into felons overnight. Minnesota farmers have relied on critical hedging products on weather and crop-related events for decades to mitigate their risks. Governor Walz chose to put special interests first and American farmers and innovators last.

Selig, who took the chair earlier in the Trump administration, has folded the prediction-market preemption fight into a broader push to keep state regulators from carving up federally chartered exchanges. The companion to that posture is the PREDICT Act, the federal bill we covered in our earlier piece on the proposal to bar federal officials from betting on prediction markets, which leaves state criminal statutes like Minnesota’s completely untouched.

The Arizona Template That Already Cleared

Six weeks before the Minnesota complaint, U.S. District Judge Michael Liburdi in Phoenix issued the ruling the CFTC is now asking Minnesota’s court to copy. Liburdi granted a preliminary injunction against Arizona Attorney General Kris Mayes after she filed criminal charges against Kalshi for offering sports event contracts inside the state.

The Liburdi opinion found that both field preemption and conflict preemption likely apply. Congress, the court said, built a comprehensive federal regulatory structure for swaps traded on designated contract markets, leaving states without authority to layer criminal liability on top of it. The opinion warned that letting every state prosecute event-contract operators would leave them facing “the prospect of fifty different regulators.”

That phrase is the spine of the federal case in Minneapolis. The CFTC’s complaint cites the same Commodity Exchange Act sections, names the same designated contract markets, and asks for the same procedural relief: a preliminary injunction barring enforcement while the merits litigation proceeds. The Liburdi reasoning has since been borrowed by the Third Circuit, which affirmed a similar injunction against New Jersey in a 2-1 decision on April 7, 2026.

Federal district judges in Minnesota are not bound by the Arizona or Third Circuit holdings, but they read them. Two preliminary injunctions on near-identical statutes are a heavy lift to ignore on a compressed pre-effective-date schedule.

State by State, the Map of Active Suits

Roughly a dozen states have moved against prediction markets in the past 18 months. Five have triggered direct CFTC suits. Several others have prompted private actions by Kalshi, Polymarket, Coinbase or Robinhood. The map looks like this.

Read horizontally, the CFTC is operating less like a regulator policing markets and more like a litigator running a coordinated preemption campaign. The pattern lines up with our earlier reporting on Nevada’s enforcement case against Kalshi and Coinbase’s countersuit against three U.S. states, where the same federal venue is the destination both sides actually prefer.

Kalshi’s $14.81 Billion April Versus a Patchwork Map

The numbers on what is at stake have moved fast this year.

• $14.81 billion: Kalshi’s April 2026 contract volume, up 13.3 percent month over month
• -14.8 percent: Polymarket’s April month-over-month volume change
• $5.8 billion: gap by which Kalshi out-traded Polymarket for the month
• 64 percent: Polymarket-implied probability that the Supreme Court takes a sports event-contract case by year-end

Kalshi’s growth has come almost entirely from sports-style contracts, which is precisely the product Minnesota and Nevada have moved to outlaw. Polymarket, which is unlicensed for U.S. retail users and operates through CFTC-conditional channels, has been losing share in part because its U.S. legal exposure remains less settled. The earlier benchmark moment for the category, when Super Bowl overtime drove a record prediction-market spike, sits in the middle of that growth curve.

The patchwork-map cost is real. Every state action forces the platforms to geofence users, modify product offerings, or accept the risk of state criminal charges against U.S.-based employees. Federal injunctions clear that risk one state at a time, which is exactly why the agency is willing to litigate in volume.

A Circuit Split Pointing Toward the Supreme Court

The Third Circuit’s 2-1 ruling on April 7 held that sports event contracts traded on a designated contract market are swaps under the Commodity Exchange Act, and that the CEA preempts state gambling enforcement. That holding binds the Third Circuit’s states; it does not bind the Fourth Circuit (Maryland) or the Ninth Circuit (Nevada).

The Ninth Circuit heard Nevada’s appeal on April 16. The three-judge panel, by all accounts on the record, leaned toward Nevada’s position that sports event contracts are functionally indistinguishable from sports betting. A ruling for Nevada would create a direct circuit split, and a circuit split on a question of federal preemption of state criminal law is a Supreme Court fact pattern.

Kalshi’s head of communications, Elisabeth Diana, drew the political contrast bluntly on X. She called Minnesota’s stance “peak hypocrisy,” noting the state collects millions a year in casino, slots, poker and roulette revenue while moving to criminalize CFTC-regulated event-contract exchanges. The line landed because it tracks the legal argument: states that license retail gambling have a hard time arguing event contracts are uniquely dangerous.

The CFTC’s calendar in Minneapolis is short. The agency needs a preliminary injunction before August 1, when the felony provisions activate. If Judge Liburdi’s reasoning travels, the Minnesota court will sign a similar order on a similar record, and the new statute joins Arizona’s in legal suspension. If it does not, prediction-market operators face a hard choice in late July: pull Minnesota users, accept felony exposure, or rush an emergency appeal to the Eighth Circuit on a compressed schedule, with the Supreme Court watching whether the circuits actually split.