A U.S. District Judge in Minnesota has stepped in to block the state from enforcing a felony ban on prediction markets mere days before it was set to take effect. The move shields platforms like Kalshi and Polymarket from prosecution while the legal battle unfolds.

Signed by Governor Tim Walz, Minnesota’s law would have criminalized running or facilitating prediction markets. It represents the first direct state-level felony ban targeting these markets rather than using gambling laws. But Judge Katherine Menendez’s 44-page ruling challenges the state’s authority, highlighting that many prediction contracts fall under federal oversight by the Commodity Futures Trading Commission (CFTC).

Federal Jurisdiction vs. State Law

The judge's injunction is grounded in the Commodity Exchange Act’s exclusive jurisdiction granted to the CFTC over swaps traded on designated contract markets. Minnesota had passed Senate File 3432 to outlaw certain prediction markets, but the courts found that contracts linked to major events like the Senate races, the World Cup, and geopolitical hotspots such as the Strait of Hormuz are probably subject to federal swap regulations.

Meanwhile, other types of contracts, including those tied to entertainment topics like the reality show Love Island or announcer word bets, may not fall under federal swap regulation. This split complicates enforcement and leaves some contracts in a legal gray area.

The legal dispute started after a prior Minnesota ban prompted immediate lawsuits from the CFTC and prediction market companies. Kalshi, in particular, argued that federal law preempts state attempts to criminalize these markets. Menendez’s ruling currently bars Minnesota from applying its statute to CFTC-registered markets until the case is resolved.

The decision marks a significant checkpoint for the evolving regulation of prediction markets in the US. With states experimenting with bans and the CFTC asserting control, how these platforms operate could hinge on this case’s final outcome.

This article is for informational purposes only and does not constitute financial advice.