Washington sues Arkansas and Louisiana to stop them shutting down prediction markets

The federal government has sued Arkansas and Louisiana to stop them shutting down prediction markets. These are exchanges where people buy contracts that pay out on the result of a game, an election or almost any other event. The United States and the Commodity Futures Trading Commission, the main American regulator of derivatives, filed the suits on 12 and 13 November. They argue that federal law alone governs exchanges the commission has licensed, so states cannot turn their gambling laws on them. Arkansas is the 11th state the commission has sued in this fight, and Louisiana the 12th.

Louisiana moved fastest. On 12 November its attorney general, Liz Murrill, asked a state court in Tangipahoa Parish to halt 32 businesses before they could answer. The judge granted the order the same day. It bars them from offering, clearing or settling any event contract for anyone in Louisiana without a state gaming licence. That reaches the exchanges, the brokers that bring customers to them and the clearing houses that settle their trades. Robinhood and Coinbase are caught alongside the specialist exchanges Kalshi and Polymarket. "It's not complicated: if you aren't a licensed gaming operator, you aren't legal," Murrill said after the ruling.

The order leans on a state law enacted on 1 August that widened what Louisiana counts as gambling by computer. The federal complaint says anyone who takes part faces a fine of up to $100,000 and up to five years in prison. Louisiana, it says, counts prediction market staff and traders among them. The effect so far is uneven. Robinhood stopped offering the contracts in Louisiana that day, The Advocate, a Baton Rouge newspaper, reported. Kalshi told users in the state: "Without a hearing, notice, or due process, the state has decided to end Louisiana's access" to its markets. Yet the paper found people still placing money on contracts on Friday.

Arkansas has moved more slowly, but more money is at stake. Its attorney general, Tim Griffin, sued Kalshi in a state court on 4 November. His complaint calls Kalshi largely a gambling platform. He wants an injunction and civil penalties of up to $10,000 per violation under the state's law against deceptive trade practices. Counted that way, the federal complaint says, the penalties could reach hundreds of millions of dollars. That would dwarf what Kalshi earns in the state.

Underneath both cases is a question no court has settled for the whole country. When someone bets on a football match through an exchange the commission has licensed, is that a federally regulated financial contract or a wager the state may police? Federal appeals courts have split on it, and in September New Jersey asked the Supreme Court to decide. Michael Selig, the commission's chairman, called Louisiana's lawsuit "naked lawfare and a cynical political stunt". Louisiana's order is temporary, and both federal suits are at their first step. A federal judge has yet to rule on Kalshi's own request to restrain Louisiana's officials.