CFTC Sues Kentucky to Shield Kalshi and Polymarket – the First Republican-Led State It's Targeted

The Commodity Futures Trading Commission (CFTC) sued Kentucky in federal court on June 23 to block the state’s crackdown on Kalshi and Polymarket – its ninth such suit since April, and the first against a state with a Republican attorney general.

• • The CFTC sued Kentucky on June 23, its 9th suit against a state over prediction markets since April.
• • Kentucky is the first Republican-AG state the CFTC has sued; AG Coleman sued Kalshi and Polymarket on June 17.
• • The suit also challenges Kentucky’s 14.25% tax on prediction-market fees, the first such state levy in the US.

The first red state in the crosshairs

The Commodity Futures Trading Commission filed a complaint for declaratory and injunctive relief against Kentucky on June 23, asking a federal court to bar the state from enforcing its gambling laws and a new tax against federally regulated prediction markets. It is the ninth such suit the agency has brought since April – and, crucially, the first to target a state led by a Republican.

Every prior CFTC suit hit a state with a Democratic attorney general, a pattern critics had flagged. Kentucky breaks the trend: Governor Andy Beshear is a Democrat, but Republican Attorney General Russell Coleman is the one who sued Kalshi and Polymarket on June 17, alleging they run unlicensed sportsbooks. That suit also named Kalshi’s partners Coinbase, Robinhood and Webull as affiliates.

The CFTC’s answer is the one it has leaned on all year: that sports-event contracts are swaps under the Commodity Exchange Act, placing them under exclusive federal jurisdiction and preempting state gambling law. “Kentucky is the latest state attempting to shut down federally-regulated event contracts,” CFTC Chair Michael Selig said, pledging to defend the agency’s “exclusive jurisdiction over prediction markets.”

The complaint also targets a novel weapon: a 14.25% excise tax on prediction-market transaction fees that Kentucky enacted in April, due to take effect January 1, 2027. The CFTC calls it a barrier designed to make the platforms “impossible” to operate in the state – the first tax of its kind in the US. A coalition backing Kalshi, Polymarket and Crypto.com had already sued over the levy on June 12.

Coleman was unmoved, vowing his office would defend the state’s betting laws against “out-of-state companies.” The platforms have removed his suits to federal court, betting on a friendlier venue – the same playbook unfolding in Nevada, where the state is trying to fine Kalshi $120,000 a day. Roughly 20 states are now in active litigation, former CFTC and SEC chair Gary Gensler has filed an appeals-court brief arguing sports contracts fall outside the agency’s swap rules, and a Supreme Court case is widely expected as soon as next year.

For now, the CFTC is fighting state by state to hold a single national rulebook together. Kentucky shows the fight no longer breaks cleanly along party lines – and that the platforms’ biggest threat is still a patchwork of states that see a sportsbook where Washington sees a swap.