This article was originally published in Dow Jones Risk Journal and is republished here with permission as it originally appeared on May 4, 2026.
Prediction markets allow users to trade event contracts on real-world events, such as election outcomes, sporting events and even the highest temperature in New York City today. Seemingly overnight, they have achieved mainstream prominence. Since 2025, Kalshi’s user base alone has grown from approximately 600,000 to more than 5,000,000.
On March 11, Kalshi filed a lawsuit in the U.S. District Court for the Southern District of Iowa against Attorney General (AG) Brenna Bird and members of the Iowa Racing and Gaming Commission. Kalshi’s complaint asks the court to declare that the Commodity Exchange Act (CEA) and the Commodity Futures Trading Commission’s (CFTC) “exclusive jurisdiction” over trading on designated contract markets preempt Iowa’s gambling and election‑wagering provisions as applied to Kalshi’s event contracts.
Arizona Attorney General Kris Mayes has filed against Kalshi what appears to be the first criminal case in the U.S. against a federally regulated prediction market platform. The state alleges Kalshi is operating an illegal gambling enterprise and facilitating unlawful election wagering by Arizona residents.
On March 12, 2026, the Commodity Futures Trading Commission’s (CFTC) Division of Market Oversight issued Staff Advisory Letter No. 26-08 to all designated contract markets (DCMs), signaling a supportive stance toward prediction markets and other event-based derivatives, including contracts based on the outcome of sporting events. While reiterating existing compliance obligations, the advisory emphasizes the agency’s interest in fostering innovation and growth in these markets within the framework of the Commodity Exchange Act. At the same time, the CFTC released an advance notice of proposed rulemaking seeking broad public comment on whether and how to further regulate event contracts.
A recent decision from the U.S. District Court for the Middle District of Tennessee marks a significant development in the ongoing dispute over whether sports event contracts offered on prediction market platforms are properly regulated by the Commodity Futures Trading Commission (CFTC) or whether such contracts should be regulated by the states as sports betting. Tennessee officials had issued a cease‑and‑desist order contending that certain sports‑linked event contracts were akin to unlicensed sports wagering under state law. Prediction contract platform provider, Kalshi, responded by filing suit in federal court, arguing that these contracts were “swaps” governed exclusively by the Commodity Exchange Act and subject to the CFTC’s jurisdiction, not Tennessee’s sports‑betting framework.
In this crossover episode, Regulatory Oversight host Stephen Piepgrass teams up with Payments Pros host Keith Barnett to unpack how prediction markets, gaming, and payments intersect in a rapidly evolving and legally uncertain landscape. Drawing on Keith’s extensive regulatory experience, they explain what prediction markets are, why these contracts are treated as swaps rather than securities, and how that distinction affects insider trading issues. Stephen and Keith then address the growing tension between federal regulators and state attorneys general over whether these products are trading or unlicensed sports betting, the CFTC chair’s recent criticism of “regulation by enforcement,” and the NCAA’s push to pause college sports contracts. They close by examining what this means for banks, payment processors, and other service providers navigating know-your-customer and “lawful transaction” obligations while the law remains in flux.
Stephen Piepgrass, a partner in Troutman Pepper Locke’s Regulatory Investigations, Strategy, and Enforcement Practice Group, was quoted in the January 30, 2026 Corporate Compliance Insights article, “CFTC Withdraws Proposed Rule on Prediction Markets.”
“Taken together, these statements leave observers unclear about what position the CFTC may ultimately take on insider trading-type behaviors,” Stephen
State attorneys general (AGs) are among the most active and influential regulators in the U.S., using broad statutory authority, political visibility, and growing technical knowledge to shape policy and enforcement across sectors. In 2025, they asserted their authority to shape the legal and regulatory environment across the U.S. through aggressive and coordinated action. Despite changing
In this episode of Regulatory Oversight, host Stephen Piepgrass, who leads Troutman Pepper Locke’s Regulatory Investigation Strategy and Enforcement (RISE) practice, is joined by partner Lu Reyes for a deep dive into the national security and enforcement implications of predictive markets. The discussion centers on a headline‑grabbing Polymarket trade that appeared to anticipate former Venezuelan President Nicolás Maduro’s capture and yielded roughly $400,000 in profit, raising questions about insider trading and classified information leaks.
Popular prediction markets platforms recently announced that they have formed the Coalition for Prediction Markets. According to the coalition’s website, it aims to unite exchanges, brokers, and advocates to expand consumer access to safe, transparent, and integrity-driven prediction markets in the U.S. The coalition contends that prediction markets currently operate under a federal framework, but that framework is being threatened by state regulators “seeking to block consumer access and extend their own authority.” This messaging signals that prediction market operators are prepared to vigorously oppose state regulation in an effort to preserve exclusive federal oversight.